Streamlined Operations And Southeast Asia Expansion Will Drive Future Value

Key Takeaways

• Streamlined operations and asset optimization are expected to boost competitiveness, stabilize cash flow, and improve margins.
  
• Expansion into advanced materials and clean energy aligns with rising demand, supporting growth and diversifying future revenue streams.
  
• Chronic overcapacity, persistent losses, reliance on commodity chemicals, and slow ESG and portfolio transitions expose Lotte Chemical to ongoing margin pressures, volatility, and structural growth challenges.

Catalysts

A chemical company, manufactures and distributes petrochemical products.

• Strategic restructuring-through divesting non-core assets, optimizing overseas operations, and streamlining domestic petrochemical capacity-positions Lotte Chemical for a leaner, more competitive business model, expected to improve net margins and stabilize cash flow.
  
• Major capacity coming online in high-growth Southeast Asian markets (such as the Indonesian LINE project), where local demand for plastics remains robust relative to supply, is likely to drive volume growth and incremental revenue as the plant ramps to commercial operation in late 2024 and 2025.
  
• Ongoing expansion in high-margin advanced materials and specialty compounds-backed by new plant investments-enhances exposure to sectors benefiting from rising electrification, renewable energy, and Asian middle-class consumption, supporting both revenue growth and structural margin improvement.
  
• Acceleration of the company's green hydrogen and hydrogen fuel cell initiatives aligns with increasing global demand for sustainable, clean energy solutions, opening new growth verticals and potential government incentives that can bolster long-term earnings.
  
• Rigorous efforts to align CapEx with EBITDA and repay borrowings strengthen the company's balance sheet, reducing financial risk and interest expenses, and increasing the capacity to invest in higher-return projects-expected to enhance future earnings quality.

Lotte Chemical Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lotte Chemical's revenue will decrease by 0.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.0% today to 0.1% in 3 years time.
• Analysts expect earnings to reach ₩30.0 billion (and earnings per share of ₩1117.78) by about August 2028, up from ₩-1815.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩495.9 billion in earnings, and the most bearish expecting ₩-602.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 153.4x on those 2028 earnings, up from -1.4x today. This future PE is greater than the current PE for the KR Chemicals industry at 12.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.76%, as per the Simply Wall St company report.

Lotte Chemical Future Earnings Per Share Growth

Risks

• Chronic overcapacity in basic chemicals, especially ethylene, across Asia-including the imminent addition of nearly 19 million tons of capacity in China from 2024–2026-is sustaining pricing pressure and eroding margins for Lotte Chemical, making recovery of revenue and earnings highly uncertain.
  
• Persistent heavy operating losses in core segments, exposure to volatile external factors (exchange rates, tariffs, global economic slowdown), and only gradual potential improvements from one-off factors or restructurings, all signal ongoing risk to net margins and volatile quarterly earnings.
  
• Heavy reliance on cyclical commodity chemical businesses and delayed progress in transitioning towards higher value-added or specialty segments means Lotte Chemical remains exposed to margin volatility and faces limited pricing power, likely compressing long-term net margins and pressuring cash flow.
  
• Geopolitical and trade uncertainties, such as U.S. and European tariffs (including 5.8% Europe ABS antidumping duties and U.S.-China trade actions), as well as global sanctions impacting oil and feedstock prices, threaten both Lotte Chemical's export competitiveness and top-line revenue growth.
  
• Structural shifts in global demand-driven by increasing sustainability requirements, circular economy initiatives, and reduced demand for virgin petrochemicals-may outpace Lotte Chemical's portfolio transformation, potentially leading to longer-term revenue stagnation and underperformance if ESG transitions are slower than peers.

Valuation

• The analysts have a consensus price target of ₩76523.81 for Lotte Chemical based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩165000.0, and the most bearish reporting a price target of just ₩45000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩20799.5 billion, earnings will come to ₩30.0 billion, and it would be trading on a PE ratio of 153.4x, assuming you use a discount rate of 12.8%.
  
• Given the current share price of ₩60900.0, the analyst price target of ₩76523.81 is 20.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.