PETALING JAYA: The shutdown of Lotte Chemical Titan Holding Bhd
’s (LCT) Naphtha Cracker 1 (NC1) in Pasir Gudang, Johor, last month is viewed as “a positive development” by CGS International (CGSI) Research.
In its report yesterday, the research house highlighted that the move was a necessary step in light of the company’s prolonged financial struggles.
Commending LCT’s efforts to tackle its ongoing challenges, CGSI Research upgraded the company’s stock rating to “hold” from “reduce”, following a significant sell-off over the past three months.
However, it lowered its target price for the counter to 65 sen per share, down from 86 sen, based on an estimated 2025 price-to-book value of 0.15 times.
“LCT had recorded gross losses for the past nine quarters since the third quarter of 2022 (3Q22) despite reducing its utilisation rate from 69% in 3Q22 to 58% in 3Q24, as the petrochemical price spreads against naphtha were too narrow to recoup the cost of polyethylene and polypropylene,” it explained.
CGSI Research noted that NC1’s closure would eliminate 33% of LCT’s production capacity for intermediate petrochemicals such as ethylene and propylene, assuming LCT does not raise NC2’s utilisation rate.
LCT ran its plants at an average utilisation rate of 57% for the nine months to September 2024.
It had guided for an average utilisation rate of 55% to 60% through 2024.
CGSI Research said LCT’s effective utilisation rate for 2025 might decline to 37%, reflecting the production loss from NC1.
“We expect a lower utilisation rate to narrow LCT’s losses in 2025,” CGSI Research stated.
However, it refrained from revising its forecasts, pending further clarity from LCT regarding its 2025 utilisation guidance.
“The key unknown is whether LCT will partially compensate for the shutdown of NC1 by moderately raising NC2’s utilisation rate.
“Although we think this may not make economic sense, LCT could be concerned about the risk of permanently losing its customer base to competitors,” CGSI Research said.
“If economic conditions do not improve in one year’s time, we think LCT will take even more drastic action, including potentially mothballing the entire Malaysian petrochemical complex, which is old and cost inefficient, in order to focus on its new Indonesian naphtha cracker complex in the long term,” it added.
