Lotte Chemical Titan Holding Bhd (Lotte Chemical) remains under pressure as it faces ongoing sustainability challenges and weak financial performance. Maybank Investment Bank Bhd (Maybank IB) has reaffirmed a SELL call on Lotte Chemical with a target price of 94 sen, forecasting further losses through the financial year 2024 (FY24). This valuation is based on a price-to-book ratio of 0.15 times, which reflects a below-historical trough, given the significant first-half losses of RM403 million this year.
The company's environmental, social and governance (ESG) performance has shown only slight improvements, despite some positive changes in waste and emissions management. Lotte Chemical's ESG score rose to 30 out of 100, up from 22 in FY22, following updates in its FY23 Annual and Corporate Governance Reports.
However, the company continues to fall below average in terms of ESG standards, lacking comprehensive disclosures. Notably, Lotte Chemical has not aligned its reporting with the Task Force on Climate-Related Financial Disclosures framework and has yet to provide data on its Scope 1 and Scope 3 greenhouse gas (GHG) emissions. While Scope 2 emissions have trended slightly upward, the company remains behind industry peers in detailed sustainability reporting.
Lotte Chemical has made some headway in reducing pollutants. The company reported a reduction in wastewater discharge to 76.3 milligrams per litre (mg/L) in FY23, down from 91.4 mg/L in FY21. Emissions of nitrogen oxides (NOx) and particulate matter (PM) have also decreased, with NOx emissions falling from 759.7 tonnes in FY21 to 572.1 tonnes in FY23, and PM emissions down to 35.6 tonnes over the same period.
Gender diversity within the workforce has seen modest gains, with female representation rising to 18.4% in FY23 from 17.4% in the previous two years. Employee training has also increased, with average training hours per employee rising to 40.6 hours in FY23, up from 22.1 in FY21.
Despite these incremental improvements, Lotte Chemical lacks formalised ESG targets and fails to tie senior management's remuneration to environmental or social performance metrics. Although some carbon offset initiatives are underway, such as the installation of solar panels to reduce emissions, these efforts are not yet part of a broader sustainability strategy with measurable goals.
The lack of a comprehensive ESG framework and the absence of Scope 1 and 3 GHG disclosures highlight areas where Lotte Chemical must progress to meet rising regulatory and investor expectations. As Lotte Chemical continues to face significant challenges, particularly in improving its ESG ratings and reversing its financial losses, the outlook remains cautious from Maybank IB. With limited near-term catalysts and substantial losses expected to persist through FY24, the research house maintains a bearish stance on Lotte Chemical's stock.
