[Click e-Stock] "Lotte Chemical Restructures Daesan Plant... Significant Earnings Improvement Expected"

On March 4, Yuanta Securities reiterated its "Buy" investment opinion and maintained its target price of 165,000 won for Lotte Chemical, stating, "A significant improvement in earnings is expected following the government's approval of the restructuring of the Daesan petrochemical plant."

On this day, Kyu Won Hwang, a researcher at Yuanta Securities, said, "The government has given final approval to the restructuring plan for the Daesan-area petrochemical plant jointly proposed by Lotte Chemical and HD Hyundai Chemical. The two companies will reduce their ethylene-based production capacity by 1.1 million tons, from the current 1.95 million tons to 850,000 tons. In return, the government will provide approximately 2.1 trillion won in financial support."

The restructuring will proceed in three stages. Lotte Chemical will first spin off the Daesan plant into a subsidiary, which will then be merged with HD Hyundai Chemical. Subsequently, the integrated entity will halt operations at the Lotte Chemical Daesan plant facilities by sealing them (Box-up), and will receive capital infusion to improve its financial structure.

Researcher Hwang projected that the restructuring will yield an annual earnings improvement of 200 billion won for Lotte Chemical. This is because 150 billion won in depreciation expenses will be saved as the plant is excluded from consolidated earnings, and financial costs will decrease by 50 billion won due to a reduction in net debt. He also anticipated that the net debt will decrease from the current 6.7 trillion won to around 1 trillion to 1.2 trillion won.

There is also strong anticipation for a reversal in performance. Researcher Hwang explained, "If the three restructuring steps-Daesan plant joint venture, Yeosu plant joint venture, and the sale of Malaysia Titan-are completed between this year and next year, the effective ethylene production capacity will shrink by 47%, from 4.75 million tons last year to 2.5 million tons next year."

He added, "Although the scale will decrease, annual losses will be reduced by a total of 580 billion won through savings in depreciation expenses and financial costs. Downsizing the high fixed-cost petrochemical business will pave the way for a full-fledged rebound in performance."

This content was produced with the assistance of AI translation services.