First and foremost, credit must be given to fellow i3nvestor.com blogger “DividendGuy67”, for highlighting this stock near the all time lows of RM1.00. Lotte Chemical Titan Holding Berhad (Lotte) was listed in 2017, at an IPO price of RM6.50 and its current price of RM1.23 is reflective of how far down the price has come down in the last 7 years! 

In the first year of listing, Lotte had recorded healthy profit of RM1.1billion in 2017. Unfortunately, it has been on a steady decline ever since with its annual profit turning in to a loss from 2022 till today. In fact, the last 7 financial quarters have been disastrous with losses exceeding on average RM100 million every quarter, hence exacerbating the price fall. So why is Lotte still interesting despite its repeated bad financial losses?

MARKET TALK

According to BIMB in a research report issued in March 2024, Lotte has confirmed that its parent company in Korea, Lotte Chemical Corp is exploring to sell its entire 74.7% stake in the company. This has been confirmed in the media that Lotte has approached potential buyers via investment banks. 

The price of the 74.4% stake, if sold, is probably what is causing some excitement in the stock of late. Lotte currently trades at around 0.21x FY24 Price-to-Book, which is cheaper then its regional peers, Chandra Sari and KPIC, which are trading at 5.4x and 0.5x FY24 Price-to-Book, according to the BIMB report.

So, a conservative pricing of 0.5x FY24 Price-to-Book would see the price of Lotte at RM3.00!

POSSIBLE PRICE TARGETS BASED ON CHARTS

Daily chart has been moving up steadily from the double bottom RM0.98 level in early May. It was on a gap filling mission targeting the RM1.36 to RM1.46 level. After partially filling the gap, touching an intraday high of RM1.39, with double the average daily traded volume, the price has retraced to close at the RM1.20. This is deemed healthy to neutralise the overbought conditions caused by the aggressive buying momentum seen since early May.

In the short term it looks highly likely a retest of the RM1.36 to RM1.46 is on the horizon, while a break of this zone will retest of 2024 highs of RM1.57 and our long term target of RM2.50 to RM3.00.

From the monthly chart of Lotte from its listing day, we see a chart that has been on a downtrend from its listing price of RM6.50 till making a tradable low-off RM0.98 during the Covid lows in March 2020. A sizeable bounce ensued with the price rising to a high of RM3.54 in May 2021. However, with the continued pressure from the poor financial results, price started headed south again and has seen a successful test of the Covid lows of RM0.98 in May 2024. The current move up in price deserves attention because the recent price of RM1.39 hit last week has essentially created a new four month high and with increased volume.

So let us derive possible targets from the long-term perspective using fibonacci retracement levels. Based on on the 38.2% retracement target, we derive a price of RM3.06 while the 50% fibonacci projections puts the price at RM3.71.

CONCLUSION

Solely from a trade perspective, Lotte definitely offers a very high probability trade given its recent move up from the double bottom lows of RM1.00 with high volume. If a sale by the Lotte’s parent company does materialise, we could see a very quick and powerful rerating in price to the very realistic targets derived from comparative valuations and chart targets.

Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks.Consult your financial consultant before making any financial investments.