Earnings Report /
Pakistan

Lotte Chemical Pakistan: 1QCY22 Result Review: All time high GMs lead to earnings beat

  • LOTCHEM has reported NPAT of PKR2.6bn (EPS: PKR1.73) in 1QCY22, up a sharp 60% yoy and 85% qoq

  • The company has posted all time high gross margins of 19.7%, which improved by 4.3ppt yoy and a sharp 7.7ppt qoq

  • Revenues have clocked in at PKR20.3bn, in line with our expectation of c.PKR20.0bn, up 39% yoy and 7% qoq

Ali Aziz Soorty
Intermarket Securities
22 April 2022

LOTCHEM has reported NPAT of PKR2.6bn (EPS: PKR1.73) in 1QCY21, up a sharp 60% yoy and 85% qoq. This is a strong earnings beat vs. our estimated NPAT of PKR1.3bn (EPS: PKR0.87), where the major deviation stemmed from higher-than-expected PTA-PX spreads.  The result accomplished without any payout, in line with our expectation, as the company has track record of paying dividends in 3Q.

Key takeaways from 1QCY22 result include:

  • Revenues have clocked in at PKR20.3bn, in line with our expectation of c.PKR20.0bn, up 39% yoy and 7% qoq. The strong revenue growth is due robust sales to the Textile sector, in our view. To recall, Textile sector exports have increased by a sharp c.25% yoy during in 1QCY22.

  • The company has posted all time high gross margins of 19.7%, which improved by 4.3ppt yoy and a sharp 7.7ppt qoq.  Premium over international PTA prices is likely to have led to the deviation vs our estimated GMs of 10.3%, in our view.

  • Other income has clocked in at PKR376mn, up 35% yoy and 3.3x qoq. This is slightly higher than our estimated PKR343mn, majorly due to elevated policy rate and short term investments, in our view.

  • Distribution and selling expenses clocked in at PKR39mn, up 34% yoy and 14% qoq amid increase in transportation expense, whereas Admin expense clocked in at PKR125mn, up 9% yoy and 11% qoq. 

This is a strong result by LOTCHEM, despite retraction in PTA-PX spreads from its recent high of US$185/ton. In light of the present growth momentum coming from Textile sector, our near term outlook remains positive on LOTCHEM as PTA-PX spreads remain elevated. In light with current quarter result and longer than expected sustained spreads of PTA-PX, we look to revisit our estimates upon availability of quarterly accounts.