[Asia Economy Reporter Lee Seon-ae] On the 9th, Lotte Chemical's stock price showed weakness. This is interpreted as being affected by the company's largest-ever deficit since its establishment. In addition, the downward revision of target stock prices by securities firms is cooling investor sentiment.
At 9:53 a.m. on the day, Lotte Chemical's stock price was recorded at 170,500 KRW, down 0.58% compared to the previous trading day. Right after the market opened, it dropped to 163,000 KRW.
The day before, Lotte Chemical announced that its consolidated Q3 sales reached 5.6829 trillion KRW, with an operating loss of 423.9 billion KRW. Sales increased by 27.9% compared to the same period last year, but operating profit turned to a loss. Net profit also turned negative during the same period, recording a loss of 31.1 billion KRW. Lotte Chemical explained that global demand decreased, and although the price of raw material naphtha fell, profitability declined due to "lagging" (time lag in raw material input).
Yoon Jae-sung, a researcher at Hana Securities, said, "The company-wide reverse lagging effect (reduction in refining margin due to falling oil prices) and inventory-related losses combined to cause about 300 billion KRW in losses," adding, "All business divisions except Aromatics and Lotte Advanced Materials turned to losses, and from September, Lotte Fine Chemical was consolidated, reflecting about 40 billion KRW in operating profit."
On the same day, securities firms continued to lower their target stock prices. Samsung Securities lowered Lotte Chemical's target price from 210,000 KRW to 195,000 KRW and changed its investment opinion from 'Buy' to 'Neutral.' Hyundai Motor Securities and BNK Investment & Securities maintained their 'Buy' ratings but lowered their target prices from 205,000 KRW to 195,000 KRW and from 300,000 KRW to 250,000 KRW, respectively.
Cho Hyun-ryeol, a researcher at Samsung Securities, predicted, "Lotte Chemical will record an operating loss of 50 billion KRW in Q4, falling short of the market expectation of a 7 billion KRW operating loss," adding, "Although the lagging effect will disappear, the weakness will continue, making it difficult to return to profitability." He also pointed out, "The company spent 487.6 billion KRW to support Lotte Construction and plans to raise 1 trillion KRW in internal funds and 1.7 trillion KRW in external borrowings to acquire shares of Iljin Materials. Considering the recent tightening of the funding market, it is somewhat uncertain whether borrowing is possible." He added, "The industry is passing its bottom, but meaningful recovery until Q1 next year will be difficult," and recommended a conservative stance until funding concerns are resolved.
However, there are many opinions that the possibility of further performance deterioration is not significant. Yoon, who maintained the existing target price and investment opinion for Lotte Chemical at Hana Securities, said, "Although the worst deficit since establishment was recorded in Q3 this year, the possibility of further performance deterioration at the current level is small," and evaluated, "Even if further market deterioration occurs, facilities in Europe, where cost competitiveness is low, will be shut down, leading to supply reduction." He emphasized, "The speed of profit improvement for Lotte Chemical next year may be slow, but the direction of improvement is clear."
Lee Jin-ho, a researcher at Mirae Asset Securities, also evaluated, "Demand may increase after the first half of next year due to the possible easing of China's COVID-19 lockdown," and added, "Expectations for Lotte Chemical's new businesses such as battery materials, hydrogen, and recycled plastics will also continue."
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