[Click eStock] LG Chem Faces Gloomy Q1 Earnings Due to COVID-19... Aiming for Rebound in Second Half

Q1 Operating Profit Down 72% Year-on-Year Due to Electric Vehicle Production Disruptions
Electric Vehicle Sales Unavoidable Amid Environmental Regulations... "Possible Rebound in Second Half"

[Asia Economy Reporter Minwoo Lee] As the novel coronavirus disease (COVID-19) spreads rapidly across Europe, there are concerns that demand for chemical products and electric vehicles may slow down. However, due to environmental regulations requiring a minimum sales volume of electric vehicles, a baseline demand is expected to be guaranteed.

On the 17th, Mirae Asset Daewoo lowered LG Chem's target stock price to 500,000 KRW. This came after raising it to 550,000 KRW on the 23rd of last month, then lowering it back to 500,000 KRW within a month. The adjustment was due to concerns that the spread of COVID-19 in Europe would reduce demand for electric vehicle batteries. Nevertheless, the investment rating was maintained as a buy. The closing price the previous day was 312,500 KRW.

LG Chem's estimated sales for the first quarter of this year are 7.8842 trillion KRW, with an operating profit of 76 billion KRW. Compared to the same period last year, sales increased by 18.7%, but operating profit decreased by about 72%. This was largely attributed to one-off factors such as COVID-19 and the drop in international oil prices. Yeonju Park, a researcher at Mirae Asset Daewoo, explained, "The chemical division experienced low product spreads (the difference between selling price and raw material cost), and due to the sharp drop in oil prices, a negative lagging effect (price difference between the time of crude oil import and sale) is expected. However, this is a one-time factor."

The problem lies in the battery division. Due to the impact of COVID-19, operations at Chinese battery factories have been disrupted, leading to an expected increase in losses in the small battery segment. While Europe has large production facilities for electric vehicle batteries, China dominates small battery production, so losses due to production disruptions after the Lunar New Year are anticipated. Researcher Park noted, "However, these costs are largely one-off in nature," adding, "The key issue going forward is how much the virus's spread to the U.S., Europe, and other regions will negatively affect actual demand."

Nonetheless, there is a forecast that electric vehicle sales in Europe will recover over time. Starting this year, major automakers face environmental regulations that require them to reduce carbon dioxide emissions by more than 20% compared to last year, or else they must pay fines amounting to trillions of KRW. Even if overall sales slow down, they must prioritize selling electric vehicles. The volume of electric vehicles that must be sold in Europe to comply with regulations is expected to be 1.9 million units this year and 2.4 million units next year. This means growth of three to four times compared to last year's 600,000 units. Researcher Park stated, "In the short term, there may be production disruptions of electric vehicles and batteries in Europe due to the virus, but in such cases, more units will need to be produced in the second half of the year."

This content was produced with the assistance of AI translation services.