LOTCHEM: Negatives overplayed! Given the recent decline in Primary Margins and disappointing 1HCY13 results, we cut our EPS forecasts by 12% on average. That said, we believe that the negatives have been overplayed where anticipated PM rationalization in the medium term as additional Px capacity comes online will likely allow the company to improve profitability significantly during CY14 and beyond. In the near-term, while primary margins took a hit during 3QCY13, going down by 7% QoQ to US$101/ton, we expect gross margins to improve based on cheaper inventory carried over from 2QCY13 and 6%QoQ depreciation of the PkR with respect to the US$. For coming results, we believe that the weakening in the PKR/US$ parity and an increase in sales volume will result in a topline growth of 14%QoQ to PkR14,625mn. LOTCHEM is currently trading at a CY14F P/E of 6.05x and provides an upside of 35% to our revised TP of PkR9.21/share. Buy! Disappointing 1HFY13: LOTCHEM posted disappointing results in 1HCY13 (NLAT: PkR248mn; LPS: PkR0.16) due to timing losses, lower sales volume due to production outages because of turnaround and shutdown in customer plants. Going forward, we cut our EPS estimates across our forecast horizon by 12% on average. That said, while primary margins took a hit during 3QCY13, going down by 7% QoQ to US$101/ton, there could be near-term respite - we expect gross margins to improve based on cheaper Px inventory carried over from the previous quarter coupled with 6%QoQ depreciation of the PkR with respect to the US$ (PTA prices track regional US$ denominated PTA prices). As a result, we expect 3QCY13 results to show topline growth of 14%QoQ to PkR14,625mn leading to 3QCY13 NPAT of PkR622mn (EPS: PkR0.41). Investment Perspective: Given the recent decline in PMs, we cut our EPS forecasts by 12% on average. That said, we believe that the negatives have been overplayed. In this regard, PM rationalization in the medium term as additional Px capacity in Asia comes online during 2HCY13 and CY14, thereby reducing the mismatch in Px and PTA capacities, will likely allow the company to improve profitability in CY14 and CY15. LOTCHEM is currently trading at a CY14F P/E of 6.05x and provides an upside of 35% to our revised TP of PkR9.21/share. Buy! AKD Research
Posted on: Fri, 04 Oct 2013 09:23:22 +0000
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