Jeon Yujin and Changho, analysts at iM Securities, stated in a report on the 13th that they are raising the target price for Lotte Chemical from 80,000 KRW to 110,000 KRW, maintaining a ‘buy’ investment opinion. Jeon mentioned, “Previously, the target price was based on a PBR (price-to-book ratio) of 0.2 times, which was the historical low. However, this time, we applied a higher PBR of 0.34 times, which is the average multiple since Lotte Chemical entered an operating loss phase in 2022.” He added, “With the recent expansion of global petrochemical restructuring trends in South Korea, China, Japan, and Europe, the four-year cycle of operating losses is expected to conclude this year, leaving room for PBR to further increase.”
Jeon noted, “Lotte Chemical’s operating loss for the third quarter was 132.6 billion KRW, meeting the market consensus of an operating loss of 135.7 billion KRW, and reducing the deficit size compared to the previous quarter.” He also commented, “Since the second quarter of this year, there have been slight improvements in the overall petrochemical sector.”
In the basic chemical sector, Jeon stated, “The disappearance of costs related to the scheduled maintenance at the Daesan Plant conducted in the previous quarter and improved spreads of major products helped improve the operating deficit.” Additionally, despite a decrease in sales due to reduced demand in the leading industries, Lotte Advanced Materials saw a slight increase of 2.7% in operating profit compared to the previous quarter, thanks to improvements in a high-value product-focused portfolio. He added that Lotte Fine Chemical also saw a significant increase in operating profit, rising by 217%, due to the completion of large-scale scheduled maintenance and improved ECH spreads from the previous quarter.
Jeon further commented, “Starting April next year, OPEC+ is expected to resume increasing production, setting the annual oil price to stabilize in the mid-to-high 50 USD range.” He noted, “While both product prices and oil prices are expected to decline together, the reduction rate in product prices is anticipated to be smaller than that of oil prices, due to improved balance following restructuring. This suggests an improvement in spreads.”