LOTCHEM profitability likely to touch Rs.1.5 bln in 4QCY18, Dec to witness drop: Arif Habib Ltd

January 15, 2019 (MLN): Attributable to a 46% year-on-year (YoY) rise in international PTA margins (average USD 175/ton) tagged with 21% YoY PKR depreciation during 4QCY18, the gross margins of Lotte Chemical Pakistan Limited (LOTCHEM) are expected to improve by 13pps YoY to 17%, writes Mr. Rao Aamir Ali, Analyst at Arif Habib Limited (AHL), in his research note on Petrochemical Margins.

This improvement in gross margins is likely to push up the profitability of LOTCHEM to PKR 1,509mn (EPS: PKR 1.00), up by 212 times YoY in 4QCY18, projects Mr. Ali in his note.

He further expects net sales during the quarter to increase by 99% YoY owing to 32% YoY rise in PTA prices.

During CY18, given a 55% YoY rise in international PTA margins and 13% PKR depreciation, earnings are expected to clock-in at PKR 3.25/share, a rise of 12 times YoY compared with PKR 0.27/share in CY17, writes Mr. Rao.

“Sales are expected to increase by 60% YoY in light of 30% YoY rise in PTA prices. Gross margins are expected to clock-in at approximately 15%, depicting an increase of 11pps YoY,” he added.

While the quarterly performance is expected to improve, Mr. Rao further brings to light the expected performance of LOTCHEM in December 2018. During a telephonic conversation with Mettis Link News, he said that “as the quarterly performance is anticipated to mark higher profitability, LOTCHEM’s performance specific to December 2018 might follow a downward trend.”

Despite an 18.3% month-on-month (MoM) incline in PVC margins during December (USD 481/ton), (Purified Terephthalic Acid) PTA and (Polyester Staple Fiber) PSF margins registered a decline of 7.1% MoM (USD 166/ton) and 5.9% MoM (USD 263/ton), respectively.

He penned down his belief that the changes in margins will have negative implications for ICI Pakistan Limited (ICI) and Lotte Chemical Pakistan Limited (LOTCHEM).

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