Lotte Chemical Pakistan (LOTCHEM): 3Q2018 EPS Rs1.36, +39x YoY (+108% QoQ); DPS Rs1.5/share (Above expectations)
- Lotte Chemicals (LOTCHEM) surprised investors on higher than anticipated earnings along with cash dividend of Rs1.5/sh in 3Q2018. Earnings fared better than expectations, mainly on the back of higher GP margins of 18% during the outgoing quarter vs. 2% in corresponding period last year. The uptrend in margins was in-line with our view; please refer to our report on LOTCHEM, titled, ‘Improving Global PTA Margins to Support Earnings (Rated Buy)’, dated May 22, 2018, where we highlighted that the stock may outperform based on improving global margins.
- Net sales of the company recorded growth of 94% YoY during 3Q2018 amid rise in international PTA prices by 49% YoY coupled with rupee devaluation of 28% since Dec 2017.
- Substantial growth in GP margins (+16ppts YoY) came from increase in PTA-PX margins by 90% YoY to US$160-170/ton vs. US$85-90 in 3Q2017.
- Nearly a year ago, one of the company’s issues was higher effective tax rate, as LOTCHEM was writing off its deferred taxes, which were earlier capitalized on account of turnover taxes in periods when LOTCHEM was incurring losses. Now in 3Q2018, the company recorded effective tax rate of 23% vs. 68% in 3Q2017.
- Exponential increase in other expenses could be attributed to higher WPPF and WWF, that is in line with increase in its profitability.
- We flag, 1) removal/reduction of RD 2) Decline in PTA-PX margins and 3) 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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