PETALING JAYA: Lotte Chemical Titan Holding Bhd
’s (LCT) core net losses for the financial year 2023 (FY23) is expected to widen by 16% due to lower average petrochemical selling price assumptions, says CGS-CIMB Research.
The group’s recent 4Q22 core net loss of RM317mil was a record quarterly loss for LCT, pipping 3Q22’s loss of RM290mil.
Its 2H22 core net loss of RM607mil was also wider than the 1H22 core net loss of RM9mil, leading to a FY22 core net loss of RM515mil, the widest since it was relisted in 2017, the research firm said in its latest report.
CGS-CIMB Research, which reiterated a “reduce” call on LCT, said it is negative on the petrochemical sector for this year as “the slowdown in global gross domestic product growth, higher cost of living, and higher interest rates will likely hurt consumer spending on goods.”
Although China’s loosening of Covid-19 pandemic restrictions and lockdowns may help boost spending on consumer durables.
“We are unsure if China alone can more than offset consumption declines elsewhere,” it said.
Riding on Chemical Market Analytics (CMA) projection, the research firm said global polymer and monoethylene glycol (MEG) supply growth to be higher than demand growth in 2023, consequently causing average selling prices to be lower this year compared with 2022.
The research firm saw a potential in selling prices to outpace any decline in naphtha feedstock costs in 2023, causing a squeeze in margins.
CGS-CIMB Research also said LCT may face increased local competition as Petronas Chemicals Group Bhd’s (PetChem) Pengerang plants, which are currently being commissioned for operation.
TA Research meanwhile said: “We do not discount the likelihood of price premium erosion and heightened competition following the upcoming launch of PetChem’ new polymer plant in Pengerang.
CGS-CIMB Research said all the Pengerang plants should be operational by the end of this year.
“As a result of more intense local competition, LCT may lose its typical Malaysian polymer selling price premium of between US$50 and US$100 (RM212 and RM424) per tonne relative to broader South-East Asia price benchmarks in 2023 to 2024,” it said.
TA Research also noted it is uncertain on LCT’s near-term earnings outlook, given that product spread may continue to languish owing to the escalated naphtha costs and sluggish reopening of China’s economy.
