NH Investment & Securities analyzed on Feb. 2 that there are no signs of improvement in business conditions, which are a prerequisite for a stock price rebound, for Lotte Chemical. It then lowered its target price from the previous 86,000 won to 65,000 won, a decrease of 24%, and presented a 'neutral' investment opinion. The closing price of Lotte Chemical on the previous trading day was 59,800 won.
NH Investment & Securities projected that Lotte Chemical's revenue in the fourth quarter of last year would decrease by 3.6% compared to the previous quarter, standing at 5 trillion won, with an operating loss of 205 billion won. This is below the market consensus (average forecast in the securities industry) of an operating loss of 148 billion won.
Although it is a seasonal off-peak period, the loss from the opportunity costs of the LC USA facility maintenance that occurred in the third quarter of last year, estimated at about 90 billion won, and inventory valuation losses of 16 billion won have expired, suggesting that the deficit will be reduced compared to the previous quarter. However, the ongoing poor spreads across chemical products indicate that the business conditions remain weak.
Choi Young-kwang, a researcher at NH Investment & Securities, said, 'The conditions for improving business visibility are a significant drop in oil prices or a sharp improvement in supply and demand (recovery of operating rates), but the likelihood of these materializing in the short term is low.' He expected that the decline in oil prices (naphtha prices) would be more gradual than steep this year.
NH Investment & Securities pointed out that while Lotte Chemical's stock price has fallen to a level of 0.2 times the price-to-book ratio (PBR) for 2025, it is difficult to consider it undervalued given the prolonged low profitability in terms of operating losses and net revenue.
Researcher Choi said, 'Despite the significant drop in oil prices compared to the peak in 2022, the spread has been stagnant in the box for three years.' He explained, 'Global facility operating rates have also dropped significantly compared to past averages, and with the scale of new and expanded facilities from 2025 to 2027 increasing, it will take a long time to address the accumulated supply surplus.'
He added, 'The point at which stock prices rebound will be when signs of improvement in the petrochemical industry start to appear.'