Highlights:
- LCTitan actually has a long history despite only being listed in its present form on 11/07/17 (IPO price is RM6.5). It first started operation in 1991 and was previously listed as Titan Chemicals Corp Bhd in 2005. It was subsequently privatised in 2011 after its taken over by Lotte Chemical.
- ASP (Average Selling Price) for most of its products are on an increasing trend. ASP for Polyethylene (PE), Polypropylene (PP, raw material for Mask) and Butadiene (one of the glove raw materials) have all improved significantly since the height of the Covid-19 pandemic in April due to tight supply, strong demand of gloves, Masks and gradual recovery in economic activities.
- Average PP prices is now 20% higher than its price at the beginning of the year due to its tight supply due to undersupply from US due to shut down and closing down of plants due to Laura hurricane and slump in oil price. (Channel check with distributor for PP6331 product price raising from RM3.84 in May per kilo to RM4.64 per kilo in Aug 2020)
Read the news below:
- PE & PP in the US and South East Asia are now undersupply, while the demand from the glove, mask, automotive, food & beverage industries are expected to be tepid going forward. Besides, the demand from plastic packaging and the healthcare sector has been sustaining the growth of the resin industry for the forward 6-12 months.
- LCTITAN's raw material is naphtha, where its price has been stayed low since May 2020, due to the plunge in oil prices. Naphtha price is near all-time low in recent 3 years. It is expected profit margin of Lctitan will be boosted in Q3 of 2020 to Q4 of 2020 due to high products selling price (butadiene) while lower raw materials cost as per charts below.
- Expected to have strong double digit growth in coming 1 year based on higher product demands and selling price from Malaysia (main market) and Asia pacific (like China) and low raw material cost (it is expected oil price n raw material to remain low in coming 6-12 months due to virus makes travel restrictions globally). Oil price chart in recent 2 weeks also low and margin for LCTITAN may further expanded in Q4 2020.
- Decent dividend yields of over 3% which is higher than bank FD rate. Strong free cash flow provides sustainability of the future dividend payment.
- Strong balance sheet with Zero borrowing and the net cash per share is RM1.69 (3.9B cash) which is nearly 80% of the current share price (RM2.1).
- It is estimated that LCTITAn may achieve 300mil to 400mil profit in Q3 2020 and even higher earning in Q4 2020 (400mil and above), the forward 12-month PEx of Lctitan should be in the range of 3x-4x (EPS 69.3c). Its peer PCHEM currently is trading at trailing PEx at about 28x. Fair PE should be in the range of 5x-7x which implied close to 67% upside from current share price (TP RM3.49 based on PE of 5x). Table below shows FY2020 Q3 profit estimation.
- The risk is LCTITAN biz is in the cyclical petrochemical industry. Other risk lies in big fluctuation in crude oil price which may affect its raw material cost and also sudden drop in PP and PE demands.
Company Background
LCTitan can be said to be regional petro-chemical giant which operates
14 plants in Malaysia and Indonesia with two main categories of
products:
(1) Olefins -- Ethylene & Propylene -- and their Derivatives such
as Butadiene, Tertiary Butyl Alcohol (TBA), Benzene & Toluene.
(2) Polyolefins --i.e. Polyethylene (PE) & Polypropylene (PP).
Olefins and the base stocks from which the polyolefins are produced. Polyethylene and polypropylene can be said to be the most widely used plastic raw materials from which a very wide range of consumer and industrial products are produced. In FY18-19, polyolefins accounted for approximately 80% of the total revenue generated by the Group.
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Disclaimer:
This writing is based on my own assumptions and estimations. It is strictly for sharing purpose, not a buy or sell call of the company and the contents of this report should not be considered as professional financial investment advises or buy/sell recommendations. I strongly encourage you to do your own research and take independent financial advice from a professional before you proceed to invest.
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https://klse.i3investor.com/blogs/lionind/2020-10-03-story-h1514443612-LCTITAN_Beneficiary_of_Strong_demands_of_Packaging_Mask_and_Glove_s_raw.jsp
