On Friday, Nomura/Instinet revised its stance on Lotte Chemical Corp (KS:011170:KS), downgrading the stock from Buy to Neutral and significantly reducing the price target to KRW110,000 from KRW160,000. The adjustment follows Lotte Chemical's reported third-quarter losses, which were more substantial than anticipated, with expectations that these losses will persist into the first half of 2025.
According to the analyst from Nomura/Instinet, the downgrade was influenced by Lotte Chemical's operating losses, which are likely to continue due to a weak chemical spread and lower copper foil shipments. The analyst had previously projected a potential earnings recovery in the fourth quarter of 2024, based on China's property market rebound and a trade-in policy, along with a slowdown in China's chemical capacity expansion. However, unforeseen factors have disrupted this outlook.
The company faced unexpected challenges, including a steep increase in freight rates and an unplanned maintenance shutdown at its United States facility. These issues, combined with an oversupply of chemicals, contributed to a record-high quarterly loss for Lotree Chemical. The analyst noted that the company is in the midst of a significant portfolio transition, moving from commodity chemicals to specialty chemicals, battery materials, and hydrogen-based business.
As part of its strategic shift, Lotte Chemical has also been restructuring its assets. The company recently wound up its synthetic rubber business in Malaysia, which resulted in a recognized loss of KRW90 billion. This move is indicative of the broader changes Lotte Chemical is undergoing as it adapts to the evolving market demands and conditions.
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