KUALA LUMPUR (Nov 7): Shares of Lotte Chemical Titan Holding Bhd (KL:LCTITAN) tumbled to their lowest in more than four years on Thursday, as investors reacted to widening quarterly losses while analysts flagged more troubles ahead.
Lotte Chemical fell as much as five sen or 5% to 91 sen, its lowest since April 2020. The stock closed at 92 sen — still lower by four sen or 4.17% — giving the petrochemical company a market capitalisation of RM2.12 billion, after 2.62 million shares changed hands.
The company is likely to remain loss-making “over the next few quarters, as product spreads are not expected to improve substantially”, amid a supply overhang from significant capacity expansion, primarily in China, which outpaces demand growth, said TA Securities.
The research house expects an overall decline in revenue, and maintained its ‘sell’ call on the stock.
Shares of Lotte Chemical have fallen more than 30% so far this year, amid mounting financial losses. The company has been reporting losses for every quarter since the second quarter ended June 30, 2022 (2QFY2022), and is expected to report losses this year as well.
Analysts also expect Lotte Chemical to remain in the red for at least another two years, according to the Bloomberg consensus.
Input naphtha costs held up in the latest quarter, while average selling prices of polymer fell further, leading to a squeeze in spreads.
That is a “double whammy” for Lotte Chemical, as polymer prices are not expected to improve anytime soon, while margins will be squeezed due to sustained elevated naphtha prices, said Maybank Investment Bank.
The house also kept its ‘sell’ rating, and told investors to avoid the petrochemical sector for now.
CGS International, meanwhile, flagged that the strain on Lotte Chemical is becoming more obvious after cash balances fell with the weakened core operations to RM461 million, even after raising RM537 million from factoring. The house recommended that investors ‘reduce’ their position in the stock.
Lotte Chemical on Wednesday reported larger third-quarter losses, dragged by inventory write-downs, higher losses from a 40%-owned US associate due to a maintenance shutdown, and increased foreign exchange losses.
Net loss for 3QFY2024 widened to RM246.42 million, the olefins and polyolefins producer said in an exchange filing.
“The group expects the global business environment to remain uncertain in the near future,” Lotte Chemical said, citing geopolitical issues, such as the Russia-Ukraine war and the Middle East conflicts, which will continue to impact crude oil prices.