[Click eStock] "Lotte Chemical, Limited Profit Improvement in the Second Half"

[Asia Economy Reporter Hwang Yoon-joo] Korea Investment & Securities analyzed on the 14th that Lotte Chemical is in a difficult situation to make a profit as it cannot pass on cost burdens to product prices. Accordingly, it maintained a 'Buy' investment rating and a target price of 240,000 KRW.

Choi Go-woon, a researcher at Korea Investment & Securities, stated, "The operating loss for the third quarter is expected to slightly decrease to 10.4 billion KRW compared to the previous quarter."

Researcher Choi explained, "China, which is the most important for demand recovery, is extending lockdown measures, so the improvement in the second half of the year will be limited."

The average ethylene spread in August fell below 200 dollars. Large-scale expansions are continuing in the region, but demand is falling short of expectations due to China's zero-COVID policy and the global tightening trend.

Researcher Choi analyzed, "During the pandemic, ethylene supply volume increased by more than 10%. The industry is temporarily lowering operating rates, but it is insufficient to cover the current oversupply."

In particular, he pointed out, "Considering global economic uncertainties, it is still necessary to wait for a turnaround in the pure chemical sector. It is not the time to invest expecting short-term momentum."

Researcher Choi recommended focusing on the ethylene cycle rebound and business diversification in the long term.

He predicted, "They have been steadily continuing expansion investments while diversifying production bases, such as the Indonesia LINE project, which involves a total investment of 3.9 billion dollars. When the chemical market turns around after this year, profit leverage is expected to increase further."

He also foresaw that investments for expanding new businesses will be in full swing in the mid to long term. Researcher Choi evaluated, "Lotte Chemical plans to invest 4 trillion KRW and 6 trillion KRW respectively in battery materials and hydrogen energy sectors by 2030. Although it will take time, the factors for revaluation are valid."