LOTCHEM posts earnings of PKR 1.1Bn (EPS: PKR 0.72) during 4QCY20

Lotte Chemical Pakistan Limited (LOTCHEM) posted earnings of PKR 1.1Bn (EPS: PKR 0.72) during 4QCY20 as opposed to PKR 0.8Bn (EPS: PKR 0.53) in the SPLY, up 34/17% YoY. This took the aggregate earnings for CY20 to clock-in at PKR 2.1Bn (EPS: PKR 1.40), down 60% YoY. The result was largely in line with our expectations.

Key highlights of the result are discussed below:

Better YoY profitability is mainly attributable to lower realized prices of paraxylene; and higher other income which is mostly on account of remeasurement gain on GIDC liability booked by the company.

However, on the other hand, reason behind the decline in profitability during CY20 is mainly on account of slowdown in demand from textile sector in 1HCY21 due to COVID-19 related restrictions.

Due to lower PTA prices in 4QCY20 (↓ 29% YoY to USD 457/ton), revenue dipped by 7% YoY to PKR 12.1Bn, translating into full year revenue of PKR 38.9Bn, down 36% YoY. In contrast, the company reported an increase of 12% QoQ in top-line due to recovery in downstream demand in the polyester chain.

Gross margins witnessed an accretion of 5.0/1.0 ppts YoY/QoQ to stand at 13% in 4QCY20, mainly owing to lower realized prices of paraxylene.

The company reported a massive increase in finance costs by 14.3/20.4x YoY/QoQ to PKR 0.29Bn on account of recognition of exchange loss.

We reiterate our BUY stance on the scrip with our Dec’21 TP of PKR 19.0/sh, which implies an upside of 27% from the last close.

Courtesy – BMA Capital Management Ltd.

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