LOTCHEM earning surge by 137x during QCY18

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Lotte Chemical Pakistan Limited (LOTCHEM) announced its 4QCY18 financial result on Thursday where the company posted a profit after tax (PAT) of PKR 1,024mn (EPS: PKR 0.68), up by 137x YoY compared to PKR 7mn (EPS: PKR 0.005) during same period last year. This takes CY18 earnings to PKR 4,431mn (EPS: PKR 2.93) compared to PKR 412mn (EPS: PKR 0.27).

During CY18, net sales witnessed an increase of 55% YoY to PKR 57,400mn, which is majorly owing to a 30% YoY rise in PTA prices.

Gross margins registered a growth of 10pps YoY to 12.9% (4QCY18: 10.6% up by 7pps YoY). The improvement is led by a 54% YoY rise in international PTA margins coupled with 13% PKR depreciation.

Finance cost increased by 7.5x to PKR 505mn mainly on account of an exchange loss attributable to PKR depreciation during the period.

Currently the international PTA margins are hovering around USD 112/ton, which is lower than our long-term assumption of USD 140/ton. The stock may remain under pressure in the short term. Our Dec-19 TP for the stock is 25.3/share.