LOTCHEM: 2QCY14 EPS expected at PKR0.02 Result expectation Lotte Chemicals Pakistan Limited (LOTCHEM) is scheduled to announce its 1HCY14 financial results on August 26, 2014. We expect the company to post LPS of PKR0.15, close to LPS posted in 1HCY13. 2QCY14 EPS is expected at PKR0.02 as compared to LPS of PKR0.06 during the same period last year. Margins have remained weak during 2Q PTA margins for 2QCY14 averaged USD75/ton, down 16% YoY but relatively flat on QoQ basis. Lower margins were primarily driven by 13% YoY decline in PTA prices which averaged at USD920/ton, owing to sluggish demand in the downstream polyester sector. Mixed bag of changes As per the amendments in Finance Act 2014, import duty on PTA has been increased by 1pp to 4% which would likely be margin accretive for LOTCHEM. However, GIDC has been increased by PKR100/mmbtu to PKR200/mmbtu which would inflate power costs for the company. As per our discussion with company management, LOTCHEM is not paying the GIDC hike on the back of pending litigation; however they have been providing for it in their income statement. Moreover, as per recent news, Sind High Court has suspended Sui Southern Gas Company from collecting GIDC in excess of PKR13/mmbtu. Estimates tweaked; upgrade to Hold We have incorporated GIDC and import duty hike into our estimates and have also trimmed our margin assumptions for CY15/16/17 by USD10/ton to USD110/120/130ton on the back of worsening supply overhangs in medium term. We have also rolled forward our price target for LOTCHEM and arrive at Jun-15 PT of PKR7.4/sh and offer an upside of 8%. Upgrade to Hold! #ELIXR
Posted on: Fri, 22 Aug 2014 05:36:55 +0000