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If you had been following me, you would know that I had invested in LCTITAN. For the time being, I am still invested in LCTITAN.
However, LCTITAN had been hammered down in a rough manner due to several factor.
1. Bad quarterly result in 3Q 2024, which saw more than RM 300 million in impairment
2. Bad selling prices for their petrochemical product
3. Bad press in overall for the Lotte Group, Lotte Chemical Korea and LCTITAN in Malaysia
4. Targeted by IB for short selling
5. Parent group Lotte Corp and Lotte Chemical is being targeted by group of trader for short selling
6. Lotte Chemical bond maturing in April 2025, casting some doubt on repayment ability
I had start investing into LCTITAN at the range of RM 1.00, averaging up. It subsequently hit RM 1.39. However, it started to slide below RM 1.00 with a lot of bad press, and with the current price at RM 0.75 with more bad press, bad reports and targeted short selling activities.
According to data, LCTITAN is being shorted by more than 7 million unit of shares as of to date 21 November 2024.
CUT LOSS, HOLD, AVERAGE DOWN, OR MAKE AN ENTRY NOW?
I believe there is a lot of such question in the investor mind now, including me. However, as an experience investor that had seen through a lot of corporate exercises in the past, there is something to think about for LCTITAN, and why it is happening.
If you are in the market long enough and remember different happening of event, one of the popular one include Airasia (Now renamed into CAPITAL A BHD)
Being in the capital intensived market such as airlines, giving out consistent dividend is very hard, because almost every profit made will need to reinvest back into the company for growth, asset replacement due to aging, or contingency fund in case of any big unforeseen scenario such as Covid-19 pandemic. For the case of AirAsia, despite having very big cash flow from ticket sale, they are also 1 of the target from short seller before some big corporate exercise.
As you can see from report, Airasia got targeted by short seller in a negative report, sending share price downwards until it is so low and damaging.
However, after the bout of short selling, the shares of retailer are much lighter, and big good news came flowing in for AirAsia with major asset sale.
In short, 1 year+ of short selling sending Airasia share diving more than 50%
1 major asset sale amounting RM 4.63 billion sending Airasia share rising more than 100% from the low, and give a handsome dividend to shareholder
Basically, in the AirAsia event, short seller get retailer cut loss share at the low price for almost free as the asset sale dividend payout is almost similar to the price they buy the share
CAN THIS AIRASIA SAGA BE A REPLICATE IN LCTITAN?
As LCTITAN is in the capital-intensive sector of petroleum manufacturing, such big asset sale will probably warrant for short seller to weed off retailer to the max before a big news will come about.
What we know is that Lotte Chemical had expressed interest to dispose the Malaysian unit of Petrochemical plant. On top of that, they also expressed interest to dispose off other non-core asset in order to focus on their new project.
LOTTE had committed for hydrogen project in Sarawak, while the new plant LINE INDONESIA will be operational in 2025.
As of Petronas, there is a need to diversify from the reliance on Sarawak, which fuel up the possibilities of M&A of PCHEM and LCTITAN, since LOTTE CHEMICAL hold 76% as a single shareholder.
If LOTTE CHEMICAL is to sell all 76% of shares to PCHEM, that will trigger a MGO, and the balance of the shareholder will be rewarded handsomely if their purchase price is at a low level.
THE CONUNDRUM NOW, IS LCTITAN AT IT'S LOWEST POINT?
At RM 0.75, had LCTITAN went on to it's lowest point already? Back in Covid-19 hit era, it went to a low of RM 0.72, subsequently, it rebounded back to above RM 2.00
I would look at the situation now where by entry into LCTITAN at RM 0.75, you had a risk of 10% it will go below RM 0.70, while there is a huge possibility of it going back to RM 1.50 to RM 2.50 if such M&A by PCHEM come through in the future.
10% you will lose
10% you will get bored and sell at breakeven
80% you will win, but how much you want to win, that depends on how long you can hold until the event came real, or maybe not?
