Earnings pressure likely for Lotte Chemical Titan

PETALING JAYA: Lotte Chemical Titan Holding Bhd, which saw a reduction in its year-on-year (y-o-y) operational losses for its first quarter of its financial year 2025 (FY25), is anticipated to face headwinds in the near term, which could put pressure on its earnings.

CIMB Securities said it is maintaining its FY25 and FY27 earnings forecasts, as it believes earnings upside may be limited by the sustained weakness in average selling prices, driven by a subdued demand outlook, despite Lotte Chemical Titan’s potential benefit from lower naphtha feedstock costs amid the current soft oil price environment in the near-term.

“The recent US tariff announcements are expected to further dampen global trade sentiment, particularly impacting petrochemical demand in key export markets.

“These developments may also result in higher input and logistics costs globally, which could erode cost competitiveness and margin recovery.

“We cut our target price to RM0.39 (from RM0.67) and slashed our rating to ‘reduce’ from ‘hold’ for Lotte Chemical Titan, as the group is expected to incur losses over the next three years due to a challenging operating environment.

“Key upside and downside risks are potential privatisation and higher losses from operations, respectively.”

TA Research said based on the recent updates from five Organisation of the Petroleum Exporting Countries plus other oil-producing nations (Opec+) sources, Opec+ is expected to fast-track production increases, potentially adding up to 2.2 million barrels per day by November.

This is likely to put downward pressure on oil prices, which would lower feedstock costs, a positive for Lotte Chemical Titan, it added.

“While lower feedstock costs and reduced operating rates may offer slight margin relief, we believe Lotte Chemical Titan is likely to remain in the red over the coming quarters, as product spreads show little sign of meaningful recovery to cover fixed and operating costs.

“In line with our revised earnings forecast, we lower our target price to RM0.41/share (from RM0.64/share),” TA Research added.

“While near-term losses may narrow slightly due to lower feedstock costs, the cut reflects our growing concern over structural profitability challenges and a sharp rise in net gearing in first quarter 2025 (1Q25): 0.93 times; 1Q24: 0.57 times, which could limit financial flexibility,” the research house noted.

The research house is maintaining its “sell” call on Lotte Chemical Titan.

Meanwhile, CGS International Research said since naphtha prices have declined in April and May 2025, due to the fall in crude oil prices, price spreads against naphtha have temporarily widened.

However, it expects petrochemical selling prices to eventually follow naphtha prices down due to the negative trade outlook.

“This is the key potential de-rating catalyst for Lotte Chemical Titan, which is why we downgrade to ‘reduce’.

“The upside risk is if the United States successfully strikes trade deals with multiple nations, including China, the removal or significant reduction of US tariffs could trigger a rapid return of production and trade, and we think it could benefit petrochemical selling prices,” it said.