Lotte Chemical Pakistan Limited (LOTCHEM) announced its 3QCY20 financial result today where the company posted a Profit After Tax (PAT) of PKR 925mn (EPS: PKR 0.61), down by 45% YoY compared to PKR 1,682mn (EPS: PKR 1.11) during SPLY. On a QoQ basis, earnings went up by 17x. This took the 9MCY20 earnings to PKR 1,038mn (EPS: PKR 0.69) vis-à-vis PKR 4,733mn (EPS: PKR 3.13) during 9MCY19.

Result Highlights

·        During 3QCY20, net sales went down by 25% YoY to PKR 10.8bn. The decline in sales was due to lower PTA prices, down by 37% YoY during 3QCY20. Same trend in sales was witnessed during 9MCY20 (-44% YoY), lower volumetric sales (amid lockdown) coupled with lower PTA prices remained the primary reasons behind this dip.

·        During 3QCY20, the international PTA margins went down by 37% YoY to an average of USD 91/ton. Lower PTA margins triggered in a decline in gross margins to 11.9% (down by 456bps) compared with 16.5% during 3QCY19. However, a 5.4% PKR depreciation was observed during 3QCY20. During 9MCY20, gross margins arrived at 4.0% (down by 10pps), attributable to aforementioned reasons.

·        Other income went down by 26% YoY to PKR 275mn during 3QCY20 given lower interest rates.

Recommendation

·        Currently, we have a “BUY” call on the stock with a Jun’21 TP of PKR 15.6/share.

AHL Research