[Click eStock] "NCC Trading Zone" Lotte Chemical, Daehan Yuhwa, DL Increase Weighting

[Asia Economy Reporter Lee Seon-ae] Meritz Securities presented a stock trading strategy for pure petrochemical companies on the 21st.

As of the previous day's closing price, the stock price levels of domestic pure NCC companies Lotte Chemical and Daehan Petrochemical fell to a price-to-book ratio (PBR) of 0.6x and 0.7x respectively based on 2021 estimates. They underperformed compared to the KOSPI and industry indices this year. The background of the weak stock prices can be summarized as a shift to weaker product prices and profitability deterioration due to strong crude oil prices.

However, changes have been detected since the beginning of this month. With crude oil prices plunging, the profitability bottoming phase has passed, and concerns about supply increases have somewhat eased, making it possible to judge the business environment as positive. The undervaluation attractiveness of these companies' stocks has also been highlighted, indicating a need for improved investor sentiment in the NCC sector.

Researcher Noh Woo-ho of Meritz Securities said, "Pure petrochemical companies showed relative weakness in stock prices due to pessimistic earnings forecasts for the 2nd and 3rd quarters this year, but at this point, the investment criteria for petrochemicals prioritize the fact that the profitability, which had been worse than the earnings visibility reflected in the existing stock prices, has passed the bottom." He added, "At this point, we suggest an overweight strategy for the petrochemical sector and trading stocks such as Lotte Chemical, Daehan Petrochemical, and DL."