KUALA LUMPUR: The lagged effect of higher crude oil prices since mid-2023 is expected to cause Lotte Chemical Titan Holding Bhd's (LC Titan) fourth quarter of 2023 (4Q 2023) core net loss to widen from the 3Q 2023 level, said CGS-CIMB Securities Sdn Bhd.
In a note on Friday, the research house said the financial year 2023 (FY2023) core net loss forecast was widened to nine per cent as it raised the crude oil price assumption from US$80 per barrel to US$84 per barrel.
It said de-rating catalysts for LC Titan include a likely quarter-on-quarter wider loss in 4Q 2023.
CGS-CIMB said the company's outlook in 4Q 2023 looked weak since spreads against naphtha of polymer and monoethylene glycol prices in the immediately preceding 3Q 2023 declined to their lowest levels so far this year, which will impact Lotte Chemical negatively with a lag.
"Meanwhile, the FY2024 to FY2025 core net loss forecast increased four to six times as we raise our crude oil price assumption from US$80 per barrel to US$95 per barrel in light of the current geopolitical risks," it said.
CGS-CIMB also said another de-rating catalyst would be the potential loss of shariah status, in which it viewed that the company may lose its shariah-compliant status at the May 2024 review by the Securities Commission Malaysia.
"This is because Lotte Chemical's non-shariah-compliant debt drawdown for the construction of a new Indonesia naphtha cracker may breach the threshold of 33 per cent to total assets by end-FY2023," the research house said.
Lotte Chemical's net loss narrowed to RM55.58 million in the 3Q ended Sept 30, 2023, from RM355.50 million in 3Q 2022, mainly attributed to margin improvement and reversal in the write-down of inventories to net realisable value.
– BERNAMA