Q3 Operating Profit 25.7 Billion KRW... 24% Decrease from Previous Quarter
"Priority Acquisition Right Secured for Dosan Solus Management Rights Sale"
[Asia Economy Reporter Minji Lee] Although Lotte Fine Chemical's third-quarter earnings are expected to be weaker than anticipated, there is an opinion that its stock price will follow an upward curve due to its equity investment in Doosan Solus. In response, on the 17th, Samsung Securities maintained a buy rating on Lotte Fine Chemical and raised the target price by 19% from the previous level to 64,000 KRW.
In the third quarter, Lotte Fine Chemical is estimated to record an operating profit of 25.7 billion KRW, a 24% decrease compared to the previous quarter. This is also expected to fall about 23% short of the market consensus (33.4 billion KRW). The profitability of the chlorine series was lower than expected due to the decline in the dollar-won exchange rate.
The operating profit of the chlorine series is projected to have decreased by 95% compared to the second quarter to 700 million KRW, as the profitability of major products declined. The international price of caustic soda dropped 11% from the previous quarter, and contract prices for the domestic market also appear to have fallen further. The ECH spread also fell about 13% compared to the second quarter, contributing to the continued deficit in the ECH chlorine series. The operating profit of the cellulose series is expected to have increased by 41% from the second quarter to 15.3 billion KRW, as the impact of reduced sales volume due to the spread of COVID-19 in North America and Europe in the previous quarter seems to have disappeared. The operating profit of the ammonia series is also estimated to have increased by 2% from the second quarter to 8.6 billion KRW.
On the 23rd of last month, Lotte Fine Chemical participated as a limited partner (LP) in a domestic PEF Skylake's fund. This fund was created to acquire the management rights (53% stake, approximately 700 billion KRW) of Doosan Solus. Samsung Securities researcher Kyunghoon Moon said, “Lotte Fine Chemical has effectively acquired about a 22% stake in Doosan Solus as a financial investor,” and added, “It is judged that conditions have been created for Skylake to be the first to acquire the management rights upon sale.” He further analyzed, “Unlike many mergers and acquisitions, Lotte Group’s participation in this deal as a financial investor indicates a very strong willingness to pursue mergers and acquisitions in the chemical and materials business.”
Researcher Moon also said, “Despite the weak performance in the chemical business, there is great expectation for investment in Doosan Solus and the expansion of cellulose,” and “Considering the increased investor interest in specialty chemical products, further stock price appreciation is anticipated.”
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
