PETALING JAYA: Following the emergence of the Omicron variant of the Covid-19 virus, the share price of Lotte Chemical Titan Holdings Bhd (LCT) has come down in tandem with the broad stock market sell off.

       According to CGS-CIMB Research, the stock is now trading at a one-year forward price-to-book value multiple of just 0.4 times, which is -1 standard deviation below the mean since its listing in 2017.

       “We think this is an opportunity for investors to re-enter the stock because we expect LCT to deliver a fourth-quarter 2021 core net profit of RM240mil (albeit revised lower from our previous estimate of RM303mil because of the moderation in polymer and mono ethylene glycol (MEG) prices from late October when we made our initial estimate).

       “This is is a sharp rebound from third-quarter 2021 core net profit of RM51mil,” it said in a note to clients.

       It said the sharp rebound in profitability is the result of a quarter-on-quarter (q-o-q) recovery in polymer selling prices and spreads against naphtha feedstock costs.

       Lotte Chemical

       It noted that against third-quarter 2021, average fourth-quarter 2021 forecast selling prices in South-East Asia are higher, while LCT’s MEG plant in the United States has seen its spreads against ethane feedstock rise by 7% q-o-q in the fourth quarter of 2021.

       Locally, the one-off RM69.5mil deferred tax charge in the third quarter of 2021 will not recur and its Malaysian plant utilisation rate should recover to circa 88% in the fourth quarter from 76% in the previous quarter in the absence of turnaround activities.

       It also expects a 24 sen dividend per share to be declared in March or April 2022 after the release of the group’s fourth-quarter 2021 and full-year 2021 results and this represents a dividend yield of some 10.6%.

       Going forward, it sees financial year 2022 (FY22)-FY23 being more challenging.

       “For FY22, we forecast LCT’s core net profit to decline 79% year-on-year due to likely increased competition, with the new Pengerang facilities to be commissioned by its local competitor, and potentially lower polymer selling prices due to heavy capacity additions in China,” said CGS-CIMB Research.

       The research firm said it has accounted for this to derive a target price of RM2.63, which was reduced from RM2.93 previously.

       “We think that LCT’s share price has derated too significantly. Potentially stronger q-o-q fourth-quarter 2021 results plus the declaration of robust final dividends may help the share price to recover,” it added.