[Click eStock] "Lotte Chemical's Operating Profit to Rise If Hormuz Blockade Is Gradually Lifted... Target Price Up"

KB Securities Raises Lotte Chemical Target Price to 105,000 Won

On May 28, KB Securities announced that it expects Lotte Chemical’s earnings to improve if the blockade of the Strait of Hormuz is gradually lifted. The firm raised its target price from 90,000 won to 105,000 won while maintaining a ‘Buy’ recommendation.

Lotte Chemical’s first quarter revenue was 4.9905 trillion won (up 1.81% year-on-year), and operating profit was 73.5 billion won, marking a turnaround to profitability. Since the earnings announcement on May 12, the share price has dropped by 22%. This is because, even factoring in the positive effect from the surge in oil prices (300 billion won) mentioned in the conference call, the company would have still been in the red.

However, second quarter operating profit is forecast to be 255.9 billion won (an operating margin of 4.3%), exceeding the market consensus by 231%. Jun Wooje, an analyst at KB Securities, explained, “Due to the war, global ethylene supply is expected to decrease by 28%, but plastic accounts for only about 0.1% to 2.0% of the final product cost, which is negligible. If a supply shortage is anticipated, customers will pay a premium to secure products.”

KB Securities also raised its operating profit estimate for this year from 101.6 billion won to 364.1 billion won. Assuming the scenario where the blockade of the Strait of Hormuz is lifted in stages from mid-year, the petrochemical industry is expected to shift from oversupply to a short-term supply shortage and, in the long run, a moderation of oversupply, thus improving the industry outlook. Accordingly, the return on equity (ROE) forecast for 2026~2035 was also raised from 5.0% to 5.2%, reflecting improvements in both short- and long-term supply and demand conditions.

Jun added, “Korean companies have been preparing for large-scale production cuts since the end of last year, so their quick response likely optimized profitability. International margins are already improving, and Korean naphtha cracking center (NCC) operating rates are showing signs of stabilization and recovery.”

This content was produced with the assistance of AI translation services.