KUALA LUMPUR (Oct 24): Maybank Investment Bank Bhd expects Lotte Chemical Titan Holding Sdn Bhd to record losses for the third quarter of 2023 (3Q2023) ranging in between RM150 million to RM200 million, driven by a 3% to 5% decline in polymer prices and a significant reduction in input naphtha prices by 17%.
In a note on Tuesday, the research house said that based on its findings, it estimates polymer prices to be lower quarter on quarter (q-o-q) by some 3% to 5% in 3Q2023, with input naphtha prices (booking in a six-week lag) seen slumping 17% throughout the quarter.
"This essentially means that the group should register significant cost reductions despite expectations of lower ASPs in 3Q23. Our 3Q23 core loss estimate indicates that 9M23’s cumulative losses would range from -MYR651m to -MYR701m, making up about 65-70% of our revised FY23E full-year forecast," it said.
Maybank IB said the estimated core loss for 3Q2023 simultaneously indicates that the cumulative losses will likely occur for the first nine months of 2023 (9M2023), ranging between RM651 million and RM701 million, accounting for about 65-70% of the research house’s revised full-year forecast for financial year 2023 (FY2023).
The research house has reiterated a “sell” call on Lotte Chemical Titan, with a lower target price (TP) of RM0.84 (previously RM1.01) based on a FY2024E P/BV multiple of 0.15x, following the downward revision in earnings estimate.
Maybank IB added that it has recalibrated the financial projections for the chemical company, introducing earnings forecasts of RM1 billion for FY2023 (previously RM833 million), RM701 million for FY2024 (previously RM104 million), and RM176 million for FY2025 (previously RM154 million).
Despite polymer prices having remained relatively stable, effectively limiting the potential increase in Average Selling Prices (ASPs) throughout the quarter, Lotte Chemical Titan is expected to struggle to offset the increased costs of input naphtha, with prices seen remaining high, said the Maybank.
Thus, Lotte Chemical Titan’s net losses are expected to widen again in 4Q2023, with the group seen facing challenges in the quarters ahead.