Lotte Chemical Pakistan Limited (LOTCHEM)

Dear Clients,

– Lotte Chemical Pakistan Limited (LOTCHEM) announced 4Q2020 results reporting profitability at PkR1.1bn (EPS of PkR0.72/sh), up by 45% YoY, overshooting street consensus. This takes CY2020 earnings to PkR2.1bn as compared to PkR5.4bn reported in CY2019.

– Along with the result, the company announced a cash dividend of PkR0.75/sh.

– The company posted a 7% Y/Y decline in revenues for the quarter to stand at PkR12.1bn despite operating near full capacity for the majority of the quarter. This is attributable to a 27% Y/Y decline in regional PTA prices for the period averaging at USD460/ton. On a cumulative basis, revenues shrunk 36% Y/Y to PkR39.0bn as a function of i) low sales owing to the pandemic outbreak and ii) low PTA prices.

– Despite a 31% drop in raw material PX rates for the quarter, the cost of sales fell by a mere 11% Y/Y owing to turnaround costs as well as 3% Y/Y PKR devaluation.

– The primary delta for the quarter averaged at USD102/ton compared to USD110/ton last year. Gross margins stood at 13.0% for the quarter, up by 3.9pps with gross profitability residing at PkR1.6bn.

– Other expenses dropped in-line with lower profitability. Other expenses were restricted to PkR373mn for CY20 as opposed to PkR643mn last year.

– The company has likely recorded a re-measurement gain on GIDC that inflated other income to PkR526mn taking CY20 other income to PkR1.4bn.

– Resultantly, profit after taxation of LOTCHEM stood at PkR1.1bn (EPS: PkR0.72/sh) for the quarter taking CY20 earnings to PkR2.1bn (down by 60% Y/Y)

– Going forward, the resurgence of demand from the textile sector is expected to aid volumetric offtakes of PTA while lower product prices and margins may continue to dampen the profitability of the company going into CY21. The company is trading at a forward P/E of 8.4x.

Regards,
KASB Research

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