Lotte Chemical Pakistan (LOTCHEM): 2Q2018 EPS Rs0.65, up by 21x YoY (In line with expectations)
- LOTCHEM posted earnings of Rs0.65/share in 2Q2018, showing exponential growth over similar period of last year. The result was higher than street consensus but is in line with our expectations. We attribute higher earnings to improved PTA-PX margins of around US$170/ton in 2Q2018 vs. US$80/ton in 2Q2017. Gross margins during the quarter clocked in at 13% vs. 2% in 2Q2017.
- Effective tax rate during the outgoing quarter remained normal at 32% vs. 61% and 57% in 2Q2017 and 1Q2018 respectively. To note, effective tax rate of the company was higher in last few quarters as LOTCHEM was struggling with turnover taxes. We await for further clarity from the management in this regard.
- LOTCHEM reported sales growth of 43% YoY during 1Q2018 due to increase in PTA prices by 31% YoY to average of US$822/ton during the quarter coupled with PKR devaluation.
- Other income of the company increased by 79% YoY to Rs217mn during 1H2018 due to availability of surplus cash amid accrual of GIDC and the company’s turn in profitability.
- The Company recorded finance cost of Rs276mn during 1H2018, up by 550% YoY due to exchange losses incurred on foreign payables.
- We flag, 1) removal/reduction of RD 2) PKR appreciation, 3) Decline in PTA-PX margins and 4) lower demand from downstream segment as key risks to our valuation and earnings.
Lotte Chemical Pakistan Limited (LCPL) is a Pakistan-based manufacturer and supplier of Purified Terephthalic Acid (PTA). The Company has the capacity to produce approximately 500,000 tons of PTA per year through its plant located at Port Qasim, Karachi. It operates in the manufacture and sale of chemicals segment. The Company is a supplier for the domestic polyester and polyethylene terephthalate (PET) industries. For producing PTA, it imports its feedstock (Paraxylene) from suppliers based in Asia and Middle-East region. PTA is the primary raw material for producing polyester fiber, polyester filament yarn, polyester film and PET.
Topline Securities is one of the fastest-growing brokerage houses in Pakistan. It has strong Equity Brokerage, Economic/ Equity Research, Commodity Trading and Corporate Finance & Advisory functions.
Topline Securities has been endowed with numerous awards by renowned international financial organizations. The highlights of which consists of the award for ‘Best Local Brokerage House of Pakistan’ by Asiamoney Brokers Poll (the largest Asia-focused equity services provider poll) in 2016 and ‘Best Equity Brokerage House’ by CFA Society Pakistan in 2015.
Previously, Topline Securities held the title for ‘Best Brokerage House’ for 4 consecutive years (2011-2014) by Asiamoney Brokers Poll. Other awards include the ‘Best Salesperson’ award by Asiamoney for 6 consecutive years (2011-2016), the ‘Arabia Fast Growth 500’ award and ‘Pakistan Fast Growth 100’ award in 2012 and 2013 by AllWorld Network.
JCR-VIS, a credit rating agency providing independent rating services in Pakistan has assigned initial rating of “A-2” for short term and “A” for long term to Topline Securities. Topline Securities is registered as Underwriter, Book Runner and Research Entity with Securities & Exchange Commission of Pakistan (SECP).
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