• One of the largest integrated naphtha-based producers of olefins and polyolefins in ASEAN. Lotte Chemical Titan (LCTITAN) is an integrated producer of olefin (i.e. ethylene, propylene and other derivatives such as butadiene, TBA benzene and toluene) and polyolefin (i.e. polyethylene and polypropylene) operating in Malaysia and Indonesia, using oil-based naphtha as its feedstock. A total of RM6.5bn or 79.6% of its revenue in 2016 was derived from the polyolefin products segment, while the remainder came from olefins and derivatives products (RM1.7 bn or 20.4%). Its top customers in 2016 were Malaysia (38%), Indonesia (28%), China (11%), Asean (10%) and others (11%).

• Undemanding valuations against peers after sliding 32% from IPO price of RM6.50. Since listed on 11 July at IPO price of RM6.50, LCTITAN plunged as much as 36% on 1 Aug to a low of RM4.14 before rebounding 6.8% to end at RM4.42 yesterday on bargain hunting. Currently, the stock is trading at 9x FY19 P/E (based on IPO FY19 EPS of 48.6 sen), lower against its peers like PCHEM (15x) and Formosa Chemical & Fibre (13x) but on par with PTT Global Chemical (9x). On P/B basis, LCTITAN’s 0.75x P/B (based on IPO FY17 BVPS of RM5.90) is substantially lower against its peers PCHEM (2.0x), Formosa Chemical & Fibre (1.6x) and PTT Global Chemical (1.2x).

• Downside risks limited as values emerge after recent selloff. We believe current undemanding valuations and potential selling climax on 1 Aug (55m shares transacted against 45m sharers on IPO listing) place a floor to downside risk. Technically, the Harami pattern and bottoming up technical on hourly chart could signal further technical rebound on the cards.

• If LCTITAN is able to maintain its posture near immediate support at RM4.34 (15M chart Lower Bollinger band), the stock is poised to appreciate towards RM4.61 (23.6% FR) and RM4.78 (1 Aug high) before reaching our LT objective at RM4.90 (38.2% FR). On the flip side, a breakdown below RM4.34 will witness a resumption of previous selldown to retest RM4.25 (2 Aug low) and RM4.14 territory. Cut loss at RM4.20.

Source: Hong Leong Investment Bank Research - 3 Aug 2017