Review

• Lotte Chemical Titan Holding Bhd’s (LCTITAN) FY24 results registered a narrower core net loss of RM228.8mn, against ours and the consensus’s fullyear net loss estimates of RM825.4mn and RM835.2mn, respectively. The positive variance was largely driven by i) better-than-expected product spreads; ii) lower-than-expected associates losses due to major shutdown on plant for maintenance; and iii) higher-than-expected other income contributed from the reversal of royalty fees charged over the past 3 quarters.

• QoQ: 4QFY24 revenue decreased by 7.8%, primarily attributed to lower ASP (average price of polymer: -1.9% QoQ) and depreciation of US Dollars against Ringgit Malaysia. This was despite the slightly higher average plant utilisation of 59% (3QFY24: 58%). Excluding the impairment losses (RM940.2mn) and foreign exchange gain from dissolution of a subsidiary (RM470.0mn), LBT decreased from RM378.4mn in 3QFY24 to RM174.8mn in 4QFY24 due to lower share of losses from Lotte Chemical USA Corp, foreign exchange gain in the current quarter and one-off payment due to the termination of the pipeline lease agreement with a related party.

• YoY: 4QFY24 revenue dropped 3.4% YoY mainly due to depreciation of US Dollar against Ringgit Malaysia. This is despite higher sales volume (+4.1% YoY) and higher ASP (average price of polymer: +5.7% YoY). Average plant utilisation was recorded lower at 59% (4QFY23: 66%). Similar reason to QoQ, LBT decreased from RM255.2mn in 4QFY23 to RM174.8mn in 4QFY24.

Impact

• We have reduced our FY25 and FY26 PPE forecasts by approximately 4%- 6% to reflect the asset impairment losses recorded this quarter, along with their cascading effect. We have also lowered down our average utilisation rate assumption from 63%/73% to 55%/60%, respectively based on management’s guidance for FY25. Following these, we slash our earnings forecasts to -RM867.7mn/-RM495.4mn from -RM389.5mn/RM142.1mn. We also introduce an FY27 earnings forecast of -RM64.1mn.

Outlook

• The average polymer price for FY24 stood at 1,056.6 USD/mt, marking a 4% increase YoY. Despite signs of recovery, LCTITAN is expected to remain loss-making in the coming quarters, as product spreads are unlikely to see meaningful improvement due to persistent supply overhang from significant capacity expansions—primarily in China—outpacing demand growth.

• Recap that the construction of LINE project in Indonesia is expected to be completed in 1H2025. However, due to the challenging outlook, we believe management may defer the commercial operation of the plants as the product spreads may remain unfavourable.

• FY24 utilisation rate stood at 57%. Moving forward, management has given 2025 full-year utilisation rate guidance of approximately 50-55%, reflecting softer demand—a view we share. Consequently, we anticipate an overall decline in revenue.

Valuation

• Corresponding to our change in earnings and book value forecasts, we have trimmed down our TP to RM0.64/share (previous: RM1.02/share) pegged to 0.2x CY25 P/B ratio (previous: 0.22x), reflecting concerns over rising net gearing (currently: 0.9x) and an ESG premium of 3%. Maintain Sell.

Source: TA Research - 7 Feb 2025