Maybank IB Research said the LINE project could weigh on Lotte Chemical’s earnings.
PETALING JAYA: Lotte Chemical Titan Holding Bhd
’s (Lotte Chemical) very survival is at stake unless it can borrow fresh funds to service its debt as its business losses have run into the 14th consecutive quarter in the three months ended Sept 30 (3Q25).
CGS International Research (CGSI Research) raised the possibility of the outcome as the chemical group had only RM947mil in net working capital at the end of September.
Meanwhile, Lotte Chemical’s new US$2.4bil Lotte Indonesia New Ethylene (LINE) naphtha cracker project has interest costs of RM723mil for this year (FY25), of which the portion from Oct 15, has been expensed into the profit and loss and interest expenses of RM789mil for FY26.
Furthermore, the research house expects Lotte Chemical’s balance sheet liquidity to be pressured by the US$180mil LINE project debt repayments in FY26, with US$90mil repayable in June 2026 and US$90mil in December 2026.
“From an earnings perspective, we expect a significant widening of Lotte Chemical’s 4Q25 core net loss versus 3Q25 due to the commencement of depreciation of LINE and the expensing of interest costs from Oct 15,” the research house said.
On a full-year basis, CGSI Research has also assumed a depreciation of RM550mil for LINE.
Lotte Chemical posted a core net loss of RM143mil for 3Q25 due to the bearish supply and demand fundamentals of the chemicals market.
Plant utilisation rates for its two crackers in Johor are estimated be at between 45% and 50% due to mothballing of one of naphtha cracker there since late 2024, caused by weak spreads induced by overcapacity.
The quarterly loss was offset by some contribution from the commencement of Lotte Chemical Indonesia’s naphtha cracker.
A positive note is that while Lotte Chemical was unable to reverse its negative position in terms of earnings before interest, taxes, depreciation and amortisation (Ebitda) all through the nine months of this year (9M25), the size of the 9M25 Ebitda losses had narrowed 44% year-on-year (y-o-y).
Maybank Investment Bank Research (Maybank IB Research) noted Lotte Chemical was still making losses per unit sales at gross level in 3Q25 due to weak product spreads and expects this to prolong over the next 12 months.
The research house added that the LINE project, which achieved commercial operations on Oct 15, could weigh on Lotte Chemical’s earnings as it begins recognising annual depreciation of RM700mil based on Maybank IB Research’s estimates.
“Given current market conditions and subdued olefin prices, achieving break even may be an immediate challenge and therefore, we anticipate continued pressure on earnings, with net losses likely to widen further for FY26 and FY27,” the research house said.
Maybank IB Research retained its “sell” call on Lotte Chemical with a target price of 35 sen a share from 39 sen earlier as it said it believes the group will remain subject to declining olefin prices given the ongoing supply glut and margin squeeze from elevated naphtha prices.
CGSI Research maintained its “reduce” recommendation on Lotte Chemical with an unchanged target price of 38 sen, based on 0.1 time the group’s price-to-book value.
