Korea Investment & Securities Co. on the 22nd said Lotte Fine Chemical is expected to improve earnings because it has a stable business structure against crude oil price swings. It maintained a "buy" rating and set a target price of 70,000 won. The previous trading day's closing price of Lotte Fine Chemical was 51,400 won.
Lee Chung-jae, an analyst at Korea Investment & Securities Co., said, "With the Iran war dragging on, uncertainty in oil supply and prices of materials and supplies is rising," and noted, "Lotte Fine Chemical has a business structure with high stability in terms of raw material procurement and product sales." Lotte Fine Chemical has a product lineup that includes epichlorohydrin (ECH), diesel exhaust fluid, and cellulose.
In particular, it analyzed that Lotte Fine Chemical's main businesses, such as cellulose (pulp) and caustic soda (NaCl and water), have low correlation with crude oil supply. Also, ammonia, which accounted for 36% of first-quarter sales this year, is a distribution-centered business rather than production.
The analyst said, "Because of this business structure, even though oil prices fluctuated widely due to the COVID-19 pandemic and the Russia-Ukraine war after 2020, Lotte Fine Chemical has maintained profitability over the past five years."
Growth in the green materials segment is also expected. The green materials segment has brands such as Mecellose, Hecellose, and AnyCoat and sells cellulose-series products. Mecellose and Hecellose are used as construction additives and paint additives, while AnyCoat and others are used for purposes such as capsules for food and pharmaceuticals, texture enhancers, and coatings.
In addition, in the second half of last year, production facilities in the food and pharmaceutical segment increased from 12,000 tons a year to 18,000 tons. On Jan. 2024, it also signed a long-term distribution contract for pharmaceutical cellulose with U.S. company Colorcon.
The analyst said, "The expanded volume will be sold through Colorcon," adding, "Colorcon is the No. 1 global distributor of pharmaceutical cellulose, and sales growth is expected from the stable sale of the expanded volume."