Lotte Chemical Corp (XKRX:011170) Q3 2024 Earnings Call Highlights: Navigating Losses and ...

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Fri, Nov 8, 2024, 12:01 AM 4 min read

Revenue: KRW 5.2002 trillion, down 0.9% Q-o-Q.
Operating Loss: KRW 413.6 billion, widening from the previous quarter.
Pretax Income: Fell by KRW 592.1 billion Q-o-Q.
Assets: KRW 34.487 trillion, down by KRW 1.228 trillion Q-o-Q.
Cash and Cash Equivalents: KRW 3.6106 trillion, down by KRW 580.1 billion.
Liabilities: KRW 14.8278 trillion, down KRW 511 billion Q-o-Q.
Borrowings: KRW 10.7225 trillion, lower by KRW 360.2 billion Q-o-Q.
Debt-to-Equity Ratio: 75.4%.
Net Debt-to-Equity Ratio: 36.1%.
Basic Chemical Sales: KRW 3,628.2 billion with an operating loss of KRW 365 billion.
Advanced Materials Sales: KRW 1,121.7 billion with an operating profit of KRW 38.1 billion.
Advanced Materials Operating Profit Margin: 3.4%.
LOTTE Fine Chemical Sales: KRW 420.4 billion with an operating profit of KRW 10.3 billion.
LOTTE Fine Chemical Operating Profit Margin: 2.5%.
LOTTE Energy Materials Sales: KRW 211.4 billion with an operating loss of KRW 31.7 billion.
LOTTE Energy Materials Operating Profit Margin: -50%.

Warning! GuruFocus has detected 7 Warning Signs with XKRX:011170.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Lotte Chemical Corp (XKRX:011170) anticipates improved profitability in Q4 2024 due to stabilized ocean freight costs and the resolution of one-off factors.
The Advanced Materials business achieved an operating profit margin of 3.4% in Q3 2024, indicating resilience despite challenging market conditions.
The company is actively pursuing an asset-light strategy, including the sale of US LCA shares and plans to sell Indonesian SCI shares, to secure financial stability.
Lotte Chemical Corp is expanding its Hydrogen Energy business, with new projects expected to contribute to revenue and operating profit in the near future.
The company has secured a customer base for its TMAC product, primarily in the semiconductor industry, indicating potential for future growth.

Negative Points

Lotte Chemical Corp reported an operating loss of KRW 413.6 billion in Q3 2024, widening from the previous quarter due to falling spreads and rising costs.
The Basic Chemical business experienced a significant operating loss of KRW 365 billion in Q3 2024, exacerbated by higher ocean freight costs and maintenance issues.
The company's financial position weakened, with assets decreasing by KRW 1.228 trillion and cash equivalents dropping by KRW 580.1 trillion Q-o-Q.
The ongoing downturn in the chemistry industry and geopolitical risks pose short-term challenges to the company's recovery efforts.
Lotte Chemical Corp's existing naphtha crackers are currently loss-making, raising concerns about the profitability of new projects like the Indonesia line cracker.

Q & A Highlights

Q: With LC USA increasing its natural gas production, will the ethane price fall, and does this mean increased profitability for the company in the near future? A: This is Kwak Giseop from the Strategy Management Division. The ethane price in the U.S. has decreased from $186 per tonne last year to $150 per tonne this year due to increased natural gas stock. With LC USA's plant now operating normally after a Q3 shutdown, we expect improved profitability in Q4, leading to a turnaround.

Q: Can you elaborate on the causes of the maintenance in LC USA and its impact on utilization rates? A: This is Kwak Giseop from the Strategy Management Division. The maintenance was due to a failure in the cold box of the cracker. We prioritized safety and consulted with the vendor, deciding to repair the facility. We do not expect this issue to recur, and utilization rates should improve in Q4.

Q: What is the company's outlook for ethylene demand and supply next year, and how has the Chinese market been affected by recent stimulus packages? A: This is Park Kyo Sung from the Basic Chemical Monomer Division. Global ethylene capacity is expected to grow by 33 million tonnes over the next four years, with demand growing by 4-5% annually. In China, recent stimulus packages have had some positive impact, with PMI exceeding 50% in October. We expect more positive effects in 2024.

Q: Given the U.S. election outcome, do you foresee any changes in your CapEx plans, especially in the battery materials space? A: This is Sung Nak-Seon, the CFO. Except for the deferred LEM Spain investment, our plans remain unchanged. We plan to reduce investment by KRW 1.7 trillion next year, with CapEx staying within EBITDA levels.

Q: How does the company plan to improve profitability amid weak chemical spreads and uncertain battery market outlook? A: This is Kim Min-Woo, the CSO. We aim to improve profitability through market recovery and asset-light initiatives. We will differentiate between core and non-core assets, potentially shutting down low-efficiency facilities and attracting investment to reduce financial burdens.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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