• Maintain TRADING BUY (TP: RM1.39). Lotte Chemical Titan (LC Titan) 3M24 core LATAMI of RM192mn made up 38% and 31% of both our and consensus’ estimate respectively. On QoQ basis, 1Q24 loss before tax (LBT) was largely flattish at RM227.8mn. Demand remain subdued amidst intense competition from the oversupplied market condition but we believe this has already reflected in the share price. We maintain a TRADING BUY call on LC Titan with an unchanged DCF-derived TP of RM1.39. This implies 0.3x FY24F P/B.

• Key highlights. UR was slightly lower at 65% in 1Q24 (4Q23: 66%) amidst weak demand. Sales volume was unchanged to 387k MT which is its weakest quarterly number since 2018. Total debt rose to RM7.2bn (4Q23: RM5.9bn) to finance the construction of Lotte Indonesia New Ethylene (LINE) project which has almost fully completed. This increased its debt to total asset ratio to 29% (4Q23: 26%). The project still has around USD900mn worth of borrowing that is yet to be drawn down which shall be used for the tail-end construction milestone payment. The total debt also includes RM576mn of borrowings which are used for working capital.

• Earnings Revision. No change is made to in our FY24-26F earnings forecast.

• Outlook. Near-term outlook remain challenging amidst overcapacity and weak demand. Management has kept its guidance on UR of 65-70% for FY24 which is largely similar to FY23 UR of 67%. For LINE project, the company expects the testing and commissioning phase to take about 1- year before taking the plant into full commercial operation by mid-2025. By then, its total production capacity shall increase by 2,310k metric tonne per annum (MTPA) or 65% to 5,878k MTPA. Upon commissioning, the company targets to market the products to domestic consumer given (i) Indonesia’s position as net importer, and (ii) better efficiency and logistic cost as compared to export.

Source: BIMB Securities Research - 3 May 2024