LOTCHEM has posted 4QCY23 NPAT of PKR237mn (EPS: PKR0.16), down 88% YoY and QoQ. This took CY23 NPAT to PKR5.0bn (EPS: PKR3.35), down 50% YoY. The result came much lower than our expected NPAT of PKR1.6bn (EPS: PKR1.10), where the major deviation likely stemmed from lower volumes, and lower-than-estimated gross margins. LOTCHEM also announced a final cash dividend of PKR1.0/sh, taking CY23 full payout to PKR3.0/sh, which is in line with our expectation.
Key highlights for 4QCY23 result:
Revenue clocked in at PKR19.4bn, down 6% YoY and 17% QoQ; the decline is attributable to lower PTA volumes due to lower demand from the textile spinning sector amid lower yarn exports, coupled with plant closure in 4Q. Revenues missed our estimate of PKR22.3bn.
Gross margins of 2.0% were down 12.5ppt YoY/QoQ, dragged majorly by costly PX inventories amid weak PTA demand, and lower realized PTA-PX primary margin of US$61/ton during 4Q (down 54% QoQ). We projected GMs of 12.6%.
Other income was recorded at PKR683mn, up 66% YoY but down 2% QoQ. Other income has mainly remained flat amid elevated short-term investments and trade deposits, in our view.
Among other line items: (i) distribution expenses were up 27% YoY and 24% QoQ to PKR57mn, driven by higher fuel prices and elevated shipping costs. (ii) Finance cost was up 10% YoY but down 62% QoQ, mainly because of the absence of exchange losses on foreign lease liabilities due to stable USD-PKR rate.
Effective tax rate was 43.0% in 4Q vs. 29.0% SPLY, higher than our estimate of 38.0%.
This is a poor result by LOTCHEM as GMs have dropped to an alarming level of 2.0% in 4Q – lowest in the past 14 quarters. Although stable demand from the packaging sector should provide some respite, weak demand from textile spinning sector amid subdued exports, rising gas tariff and volatile PTA-PX margin will continue to exert pressure on the bottom-line of the company. Any escalation in the Red Sea crisis or any further unexpected output cuts by OPEC+ will likely lift PX prices relative to PTA, and contract primary margins further as Asian PTA markets in China and Taiwan remain oversupplied. We continue to maintain our Sell stance on LOTCHEM, with a Dec 2024 TP of PKR26/sh.
Courtesy – IMS Research