Lotte’s single-use plastic exposure raises risk

The company is exploring collaborations, particularly in areas such as bio-polymers and other high-value chemicals and polymers


LOTTE Chemical Titan Holding Bhd (LCT) is subject to considerable downside risk given its sizeable exposure to single-use plastics.

Maybank Investment Bank Bhd analyst Lee Yen Ling, in a recent note, described the company’s 10% single-use plastics capacity as its “biggest challenge” as more investors turn to sustainable products and services.

Lee, however, noted that LCT can tap onto its parent Lotte Chemical Corp’s technologies to develop eco-friendly products.

The investment bank said the company is also exploring collaborations, as well as mergers and acquisitions, particularly in areas such as bio-polymers and other high-value chemicals and polymers. The research house maintained its ‘Sell’ recommendation for LCT with a lower target price of RM2.10.

Key upside risks to the bank’s call and earnings forecast include slower than expected capacity expansion in the event some players opt to defer expansion plans in view of the weak market dynamics.

“There is also a persistent shortage of containers and occasional hurricanes in the US which disrupt petrochemicals supply.

“This is followed by faster than expected global economic growth and its 40%-owned associate Lotte Chemical USA Corp delivers stronger than expected operating earnings on better product spreads,” Lee said.

The forecast takes into account the company’s five-year corporate strategy, which embeds sustainability into its business. LCT currently complies with all environmental regulations and requirements in Malaysia and Indonesia.

“It also adopts the Environment Management System and has developed various operational initiatives to reduce its environmental impacts, such as sludge reduction programme and fixed volatile organic compound monitoring system among others,” Lee noted.

The company is exploring new breakthroughs such as converting polyolefin into biodegradable polymer consumers. It is also collaborating with reputable suppliers and consumers to create energy-efficient products.

“For example, it has incorporated the latest clarifier technology into its random copolymer production process, which enables its customers to fabricate products with energy savings of 8%-12% and reduce CO2 emissions.

“Additionally, it produces a new super high flow homopolymer grade that supports the production of thin-wall injection moulded containers at a lower temperature by reducing around 30oC,” she said.

Lotte Chemical made a net profit of RM151.16 million for its fourth quarter ended Dec 31, 2020, down by 24.2% year-on-year (YoY) as revenue declined 2.6% YoY to RM1.92 billion.

On a year-to-date basis, its net profit fell 66.2% YoY to RM148.59 million in the financial year ending 2020 as turnover saw a sizeable decline falling to RM6.9 billion from RM8.44 billion the year earlier.