[Click eStock] Why the Largest Shareholder of Lotte Chemical Titan is Buying Shares

[Asia Economy Reporter Lee Seon-ae] Kiwoom Securities announced on the 27th that it maintains a buy rating and a target price of 125,000 KRW for Lotte Fine Chemical. The stock price closed at 84,400 KRW the previous day.

Recently, the largest shareholder has been continuously increasing their stake in Lotte Fine Chemical in a way that does not harm shareholder value. Despite the expected negative performance in olefin/aromatic/ABS segments, the inclusion of fine chemicals/inorganic chemical businesses, which have relatively low correlation with oil prices, could improve consolidated earnings. Additionally, the ammonia business, previously undervalued as a commodity, is expected to record high growth rates in the mid to long term, and the green materials segment, which had relatively small sales, is projected to maintain high profitability due to increased demand for pharmaceuticals/alternative meat and expansion effects.

Researcher Dong-wook Lee of Kiwoom Securities explained, "Personally, considering investment cost-effectiveness, the largest shareholder’s purchase of shares likely aims for consolidated inclusion rather than an absorption merger."

According to IFA and others, global ammonia trading volume is expected to grow 10% annually from 18.4 million tons last year to nearly 240 million tons by 2050. This growth is driven by increased uses such as bunkering/marine fuel, ammonia co-firing power generation, and hydrogen transportation. Lotte Fine Chemical and its largest shareholder are expected to proceed with green/blue ammonia businesses by domestic regional hubs, considering the rising demand for ammonia and existing production bases.

The supply-demand tightness in the domestic ECH market is expected to worsen this year and next. This is because, while expansions by ECH companies such as Hanwha Solutions are limited, new epoxy resin plants are expected to start operations sequentially this year and next year.

Despite moves to resume palm oil exports from Indonesia, regional glycerin prices remain strong. This is due to sustained high demand from regions outside the area such as Europe and a decrease in glycerin production caused by ongoing debates over food versus fuel use. Consequently, the economic advantage of Lotte Fine Chemical’s propylene process is likely to continue for the time being.

Meanwhile, major chlorine-based products of Lotte Fine Chemical, such as ECH and caustic soda, have a high domestic sales ratio, so the sharp increase in logistics costs like export freight is estimated not to negatively affect performance.