Lotte Chemical 4Q profit falls on tighter margins

By MARK RAO

Lotte Chemical Titan Holding Bhd’s net profit plunged 97.3% year-on-year (YoY) for its fourth quarter ended Dec 31, 2018 (4Q18), due to tighter profit margins and one-off provisions.

The South Korean-controlled petrochemical producer posted a net profit of RM10.13 million in 4Q18 against the RM378.15 million recorded last year, despite improving its revenue base for the quarter.

It said the reduced profitability was due to the margin squeeze from high feedstock costs and lower average product prices recognised coupled with a RM45.8 million provision for a write-down of inventory cost.

Foreign-exchange losses and share of losses from associate companies also weighed on earnings which were partially mitigated by a deferred tax income recognised in 4Q18.

Revenue for the quarter rose 10.4% YoY to RM2.34 billion on higher production quantity resulting from the commissioning of new plants. This was in spite of plant utilisation declining to 81% from 86% over the same period.

The latter was due to regulatory inspection carried out for the new facilities and general plant maintenance.

For the company’s olefins and derivative business, turnover dipped 4.8% YoY to RM478.6 million owing to the decrease in selling prices, but partially offset by the higher sales volume achieved.

Revenue for the polyolefin division rose 15.5% to RM1.86 billion over the same period due to increased sales volume from new plant capacity. The decrease in average product selling price partially offset gains.

Earnings from both business segments were lower on the aforementioned margin squeeze.

For the full-year performance, the company’s net profit was lower by 25.8% YoY at RM786.23 million, while revenue was up 18.2% at RM9.24 billion.

Going forward, the company’s 2019 performance will be influenced by supply and demand dynamics in the petrochemical industry, production and operational output and feedstock prices.

The petrochemical producer said new additional capacities coming online domestically are expected to create short-term supply and demand imbalances, though this should gradually be absorbed by the high consumption growth in the South-East Asian region.

However, it noted that the overall economic environment remains challenging following the recent downgrades to the global economy in 2018 and 2019 due to trade tensions.

For feedstock prices, which are correlated to crude oil prices, the company said crude oil could still experience more volatility pending developments from the ongoing US-China trade negotiations, as well as unresolved conflicts in the Middle East.

The company is recommending a final single-tier dividend of 17 sen for its 2018 fiscal year, subject to shareholders’ approval. This is lower than the 23 sen declared in 2017.

The payment and entitlement dates will be announced in due course by the company.