-While resin and olefins prices have recovered back to 2017/2018 levels, assume Lctitan is able to deliver similar earnings in 2017/18(net profit of Rm720/780m), EPS would be around 33-38c. If we peg this to discounted industry PE of 11x, hypothetical TP will be around RM3.63/RM4.18. Other smaller caps chemical proxy in Malaysia includes Samchem and Luxchem.
-Disclaimer: This is not a buy/sell call, just some rough personal research.
- Lctitan‘s production site in Malaysia consists of 11 plants, 2 co-generation plants and 3 tank farms. It is Malaysia’s largest integrated producer of olefins and polyolefins; and one of the largest in SouthEast Asia. Lctitan’s key products include resin (polyethylene and polypropylene) and olefins (ethylene, propylene, butadiene, benzene etc.)
-Demand of resin have rose a lot, partly caused by increased demand for plastics for use in food packaging for take-out and delivery during pandemic-related lockdowns. Prices have also gained strength from rising freight rates, which have largely cut off imports as a supply source. Another notable demand drive which will impact demand in resin markets in the short term is the need for hypodermic syringes (largely made of PP) for the vaccine and PP is also a raw material for mask filters. With higher demand, PE and PP spreads are thus expected to increase 33% and 20% YoY in 2021.
- Supply shortage and strong demand causes ASP of resin and olefins to rose >30% in past few months due to global shutdowns of petrochemical plants and a shortage of shipping containers, and this should benefit Lctitan in terms of better ASP/spreads for its products. Within the petrochemical industry, margins are up 30-107% yoy due to strong demand for polyvinyl chloride (PVC) and polyethylene (PE). As per JP Morgan, PE prices and PE spreads have surged since Oct-Nov 2020 with PE-naphtha spreads crossing $700 per tonne.
- Another boost should come from the upturn in market conditions for construction and auto driven by economic stimulus efforts in China and developed countries. Government stimulus policies in China had increased sales of automotive and electronics products by 12.8% as well as household appliances by 8.7% year-on-year in the fourth quarter of 2020. Therefore, the spreads of downstream products related to durable goods production, including ABS and BPA, have surpassed pre-Covid-19 pandemic levels, hitting multi-year highs in late-2020. ABS is also widely used in the production of components for electrical appliances and cars.
- With a cyclical recovery in the petrochemical & refinery industry, some of the largest petrochem peers regionally have seen an uptick in share price. Hengli petrochem seen a +50%; Rongsheng petrochem +33%; Exxonmobil +25%, Sumitomo Chem +18%; Lotte Chem Corp +12% in share price in recent one month. Lctitan is an obvious laggard, and share price should track the industry peers. This provides some trading opportunity.
-While resin and olefins prices have recovered back to 2017 / 18 levels, assume Lctitan is able to deliver similar earnings in 2017 / 18 (net profit of Rm 720 /780m), EPS would be around 33 /38c. If we peg this to discounted industry PE of 11x, hypothetical TP will be around RM 3.63/ RM4.18. Other smaller caps chemical proxy in Malaysia includes Samchem and Luxchem.
- Disclaimer: This is not a buy/sell call, just some rough personal research
My frd broccoli recommends prlexus at 1.16. I guess ntg much to write on prlexus, previous steep retracement has sent share price to an attractive valuation. With the worsening Covid cases globally especially Europe and US, authorities will enforce stricter mask regulations and potential lockdowns again. Prlexus's FDA-approved fabric mask shall continue to see strong demand in coming quarters and share price is in huge discount now.
Disclaimer: This is not a buy/sell call, trade at own risk.
PPHB also commands highest net margin of 10% among its peers(Master,Boxpak,Muda, Orna etc). PPHB recorded a record high earnings in 3Q20, with 5.4c EPS, 9M20 EPS 8.4c. If we assume 4Q20 deliver another 5c EPS, full year EPS would be 13.4c, 10x PE(industrial average) will be at least RM1.34. This is excluding ASP and demand growth, if we conservatively assume FY21 earnings grow 10%, TP will be about RM1.50.
Disclaimer: This is not a buy/sell call, just a personal research.
My friend brendan recommends pphb at RM0.995. Like Orna and Muda, PPHB is a corrugated and paper manufacturer involved in carton box manufacturing, where ASP rose since October due to raw material shortage and stronger demand causing paper raw material prices to increase >30%. Nevertheless, most of the paper and corrugated manufacturers have their paper inventory and revised their ASP to pass on the cost. Demand is also stronger due to e-commerce boom and seasonality.