[Click e Stocks] "LG Chem, Both Petrochemicals and Secondary Batteries Hit Bottom in First Half"

[Asia Economy Reporter Minji Lee] Eugene Investment & Securities maintained a buy rating on LG Chem on the 20th and set a target price of 500,000 KRW. Despite low performance in both the petrochemical and secondary battery sectors in the first half due to the decline in oil prices and the impact of COVID-19, the company is expected to improve its performance in the second half.

In the first quarter, LG Chem's sales increased by 7.5% year-on-year to 7.1 trillion KRW, but operating profit decreased by 16%. Net profit also dropped sharply by 83% to 36.3 billion KRW.

Researcher Seonghyun Hwang of Eugene Investment & Securities said, "Operating profit exceeded market expectations by 48%, marking an earnings surprise," and added, "Net profit declined due to delayed corporate tax deductions caused by losses at overseas subsidiaries and accounting procedure issues."

Looking at operating profit by business division, the petrochemical sector recorded about a 40% decrease to 242.6 billion KRW. Despite weak demand due to the decline in oil prices and the impact of COVID-19, the improvement in spreads of key products such as ABS and PVC helped the division perform relatively well.

Second-quarter sales are expected to decrease slightly by 0.2% year-on-year to 7.2 trillion KRW. Operating profit is forecasted to decline by 9.5% to 242.1 billion KRW. Although the petrochemical division's margin is expected to improve due to the drop in naphtha prices, the impact of COVID-19, including adjustments in operating rates by automakers and fixed costs from new facility installations, is expected to result in performance similar to that of the first quarter.

Researcher Hwang explained, "Both the petrochemical and secondary battery sectors are at their bottom in the first half, leading us to lower the 2020 battery sales guidance from the previous 15 trillion KRW to 12?14 trillion KRW," adding, "However, considering the possibility of a turnaround to profitability in the large battery division in the fourth quarter and the strengthened cost competitiveness of Asian naphtha crackers, the investment attractiveness remains high."

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