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On Friday, HSBC analysts downgraded Lotte Energy Materials Corp (020150:KS) from a "Buy" to a "Hold" status, significantly reducing the price target from KRW45,000 to KRW24,000. The downgrade reflects HSBC’s revised sales estimates for 2025 and 2026, which have been lowered by 6% and 10%, respectively, due to a challenging demand environment and policy landscape.
The analysts expect Lotte Energy Materials Corp to continue incurring operating losses (OP loss) in 2025 and have reduced the 2026 operating profit estimates by 30%. This adjustment takes into account the high fixed costs the company is facing, coupled with low utilization rates. HSBC’s valuation of the stock is based on a price-to-earnings (PE) methodology, applying a target multiple of 29.8 times to the revised 2026 estimated earnings per share (EPS) of KRW813, down from the previous KRW1,503.
The new target price represents a modest upside of approximately 6%. The downgrade to "Hold" from "Buy" by HSBC is attributed to the anticipated lack of volume growth visibility for Lotte Energy Materials Corp, alongside concerns over potential equity dilution and overhang issues. The analysts’ commentary highlights the tougher conditions the company faces, which have led to the adjusted financial outlook and target price.
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