File pic shows Lotte Chemical Titan plant in Johor,
KUALA LUMPUR: Maybank Investment Bank Research has downgraded Lotte Chemical Titan (LCT) to Hold from Buy as the recent rise in its share price has fairly reflected its risk-reward for now.
The research house’s 12 month target price is RM4.70 compared with its last traded price of RM4.34.
“LCT’s 1Q19 top-line is looking to be better as compared to 4Q18 as the petrochemical prices are slowly recovering. However, the net margin between ASP and input cost year-to-date (YTD) is lower than our forecasts,” it said on Thursday.
Maybank Research said the petrochemical sector is extremely volatile at the moment and things can change very quickly.
Both ASP and naphtha prices are very volatile at the moment, making it extremely difficult to see any trends.
“We believe that petrochemical prices will exhibit greater stability once the re-stocking cycle convenes, but this might take another quarter or two to materialise. Until then, the market will likely take a cautious stance,” it said.
The research house said its FY19E earnings were based on 85% factory utilisation rate and product margin of RM550 a tonne. Year-to-date, it estimates the product margin to be closer to the RM500 tonne levels but the margin has been gaping up in recent weeks.
Therefore, it is keeping its FY19-21E earnings unchanged for now.
“We expect LCT deliver a 5% dividend yield in FY19 despite the current challenging outlook. Other valuation metric such as price-to-earnings ratio, enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) and price-to-book value are low relative to peers, factoring in LCT’s higher operational risk due to its not ideal naphtha procurement strategy.
“We value LCT on 4.9 times 2019 EV/Ebitda (10% below naphtha based peers),” it said.
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