LOTPTA – Attractive Investment Fundamentals – Buy
February 22nd, 2010 | 
Author: Effective 17 September 2009, KP Chemical Corporation, a subsidiary of the South Korean conglomerate LOTTE, completed its acquisition of the majority shareholding 75.01% of Pakistan PTA Limited (PPTA). With this acquisition, Pakistan PTA Limited has become an official member of the LOTTE Group.
Founded in June 1948, the LOTTE Group has been making rapid strides across the global stage as a manufacturer of superior confectionery products. The brand is recognized by consumers across 70 countries globally, including Europe and Asia. The LOTTE Group has emerged as a total lifestyle company with diversified business lines, the span of which includes fast food chains, electronic products, hotels, retail stores, construction, financial services, chemicals and professional baseball.
LOTPTA operates a 480K tones per year plant of PTA at Port Qasim. LOTPTA’s earning largely depends on its primary margins. Primary margins show a relationship between PTA prices and Paraxylene (Px) prices. Px is the major raw material procured by the company from various sources including India, Malaysia and Iran etc.
LOTPTA has emerged as a turnaround story during the CY09 due to strong PTA:Px margins, declining financial charges and growing volumetric off take. Activity in the downstream sector including textile and PET industry has led significant increase in sales volume. Almost 93% of the company’s off take was consumed by domestics industries while the rest was exported to China, India and Oman. The company has announced its intention to setup a 40MW cogeneration power plant at its manufacturing site in Port Qasim. Commissioning has been targeted to be at the end of 2011. It is expected to generate significant savings in production cost.
Lotte Pakistan PTA Limited (LOTPTA) announced its CY09 (2000) annual results on Januray 29, 2010. The company reported a PAT (Profit After Tax) of PKR 3,383mn (EPS: PKR 2.23) against a LAT of PKR 1,760mn (LPS: PKR 1.16) in CY08 (2008). This is the first profit reported by the company after 3 consecutive years of losses. Higher sales volumes and improved PTA:Px margins led the company to post a gross margin of 15.6% in CY09 against a mere 2.6% last year. For 4QCY09, the company posted a PAT of PKR 1,362mn (EPS: PKR 0.89) against a LAT of PKR 1,188mn (LPS: PKR 0.78) in 4QCY08. To the surprise of the market, LOTPTA also announced a 5% cash dividend of PKR 0.50/share.
Hence with 2010 dynamics appearing to be in the favor of PTA producers, the LOTPTA Stock price appears to be attractive at CY09E PER of 4.7x. We recommend this stock to be bought with a target Fair Value of 17 (CY10 PER of 7x). This gives an upside potential of 60% from current price.
Posted in Stocks1 | 
Tags: Attractive Investment, Confectionery Products, Diversified Business, Fast Food Chains, Investment Fundamentals, Karachi Stock Exchange, KSE, KSE Gurus, KSE Portfolio, KSE Stocks, Lifestyle Company, LOTPTA, LOTPTA 2009 Annual Results, LOTPTA 4QCY09 Results, LOTPTA Annual Results, LOTPTA Dividend, LOTPTA EPS, LOTPTA Fair Value, LOTPTA PER, LOTPTA Power Plant, LOTPTA Price Earning Ratio, LOTPTA Profit After Tax, LOTPTA Stock Price, LOTTE, LOTTE Group, Pakistan PTA, Paraxylene, Pet Industry, Pkr, Port Qasim, PPTA, PTA Plant Port Qasim, PTA:Px Margin
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