AKD Quotidian about — LOTCHEM: 1QCY14 Result preview

Karachi, April 17, 2014 (PPI-OT): The BoD of LOTCHEM is scheduled to meet on 24-Apr-14 to announce the result for 1QCY14. In this regard, AKD Securities expects the company to post NLAT of PkR31mn (LPS: PkR0.02), a sharp improvement over 4QCY13 where the company posted NLAT of PkR584mn (LPS: PkR0.39). Regional PTA-Px Primary Margins (PM) recovered somewhat to US$82/ton during 1QCY14 from US$65/ton in the preceding quarter resulting in an improvement in the gross margins.

However, expected growth in regional PTA capacity is likely to keep margins depressed in the near term as new plants compete for market share. This is despite a decline in Px-Naptha spreads due to additional Px capacity coming online. AKD Securities looks to revise AKD Securities limited’s investment case for LOTCHEM post the 1QCY14 result.

1QCY14 Preview: The BoD of LOTCHEM is scheduled to meet on Apr 2414 to announce the result for 1QCY14. In this regard, AKD Securities expects the company to post NLAT of PkR31mn (LPS: PkR0.02) on a consolidated basis, a sharp increase over 4QCY13 where the company posted NLAT of PkR584mn (LPS: PkR0.39). In this regard, recovery in earnings has been led by an 27% sequential recovery in PTA-Px PM during 1QCY14 to US$82/ton.

Another factor contributing to the improvement in earnings is the declining Px import cost led by 4%QoQ appreciation of PkR vs. the US$ (quarterly average) and a likely delay in passing on the impact of appreciating PkR to the end consumer. AKD Securities expects a sequential decline in the top line due to a decline in PTA prices by 13%QoQ to PkR12,895mn.

Margins to remain weak: Regional Px prices took a hit with FOB Korea Px prices coming off by 10%QoQ during 1QCY14 as additional Px capacities finally came online in the region. Despite the weakness in Px prices sharp growth in PTA capacities resulted in regional manufacturers competing away the benefit to gain market share. With another ~17mn tons of capacity expected to come online over the next two years, out pacing growth in demand by ~9mn tons AKD Securities can expect the weakness in PTA-Px PMs to continue. AKD Securities looks to revisit AKD Securities Limited’s investment case for LOTCHEM post the announcement of 1QCY14 result.