[Click eStock] "Lotte Jeongmil Hwachem, Low-Price Buying Opportunity for Eco-Friendly Growth Stock"

Growth in Epoxy Raw Materials Sector... Q2 Performance Meets Market Expectations
Daishin Securities "Lotte Chemical Target Price Raised from 105,000 KRW to 110,000 KRW"

[Asia Economy Reporter Gong Byung-sun] Lotte Fine Chemical posted second-quarter earnings this year that met market consensus. This was due to improved profitability of its main chlorine-based product, epoxy raw material (ECH), driven by favorable conditions in downstream industries. Growth in the green business division and eco-friendly sectors is also expected going forward.

Against this backdrop, Daishin Securities announced on the 3rd that it maintains a 'Buy' rating on Lotte Fine Chemical. The target price was raised from the previous 105,000 KRW to 110,000 KRW. The closing price on the previous trading day was 70,200 KRW.

Lotte Fine Chemical showed strong performance in line with consensus in the second quarter. Its sales in Q2 rose 43.8% year-on-year to 422 billion KRW, and operating profit increased 51.7% to 53.9 billion KRW. These results met consensus expectations. The consensus for Q2 sales and operating profit were 403 billion KRW and 52.4 billion KRW, respectively, so actual results slightly exceeded estimates by 4.7% and 2.9%.

The strong performance of the ECH segment led to profit growth. Sang-won Han, a researcher at Daishin Securities, explained, "ECH's profitability sharply improved due to spread (margin) increases driven by favorable conditions in downstream industries," adding, "It is estimated to have reached an all-time high level." The caustic soda segment also saw profit increases as some of the price rises compared to the previous quarter were reflected in actual selling prices.

From next year, the green materials business division is expected to drive growth. This year, demand for industrial green material cellulose improved as downstream industries such as paint and cement became active, but operating profit in the green materials segment is estimated to have decreased by 8% compared to the previous quarter due to increased costs including logistics, raw materials, and fixed expenses. However, the researcher said, "With the completion of capacity expansion in Q2 this year, sales volume is expected to increase along with price hikes through year-end contract renewals," and forecasted, "Operating profit in the green materials business division will increase by 44% compared to this year."