Lotchem reports higher volumetric sales but struggles with margins, other income

Lotte Chemical Pakistan Limited (LOTCHEM) recently released its financial results for 2QCY24 and the numbers have sparked interest.

The company reported earnings of Rs0.84 per share, which is a significant increase of 4.1 times year-on-year (YoY) and 42% quarter-on-quarter (QoQ).

This brings the total earnings for the first half of 2024 to Rs1.43 per share, although this is down 24% compared to the same period last year.

The jump in earnings is primarily due to higher volumetric sales during the quarter.

Despite a challenging economic environment, LOTCHEM managed to increase its revenue by 95% YoY to Rs32.1 billion in 2QCY24.

This growth was driven by increased sales volumes and a higher sales premium, even though the average price of purified terephthalic acid (PTA) declined by 1% YoY to US$802 per ton during the quarter.

Challenges with margins and costs

The company’s gross margins took a hit, declining by 5 percentage points YoY to 7.2% in 2QCY24.

Several factors contributed to this decline, including higher gas prices, a 9% YoY drop in PTA-paraxylene (PX) margins, and a 3% YoY appreciation of the Pakistani Rupee against the US Dollar.

These challenges highlight the ongoing pressures on the company’s cost structure.

Additionally, other income for LOTCHEM fell by 39% YoY in 2QCY24, mainly due to a 26% YoY reduction in cash and short-term investments.

The finance cost also saw a significant increase of 48% YoY, further impacting the bottom line.

The company’s effective tax rate clocked in at 38.8%, which, while lower than the previous year, still represents a substantial burden on profitability.

Indicator	2QCY24	2QCY23

Gross Margin

7.2%

12.2%

Net Profit Margin

4.0%

1.9%

Effective Tax Rate

38.8%

85.1%

Earnings Per Share (EPS)

Rs0.84

Rs0.21

What’s the outlook for LOTCHEM?

Looking ahead, analysts at Foundation Securities remain cautiously optimistic about LOTCHEM’s future performance.

The company has been given an “Outperform” rating, with a target price of Rs27.8 per share by December 2024.

This suggests that despite the challenges, LOTCHEM still holds potential for growth, particularly if it can navigate the cost pressures more effectively.

Source: Foundation Securities