[Click eStock] LG Chem 2Q Operating Profit Expected at 377.2 Billion KRW... 41% Increase YoY

Growth in Battery and Other Energy Business Units Drives Success
Petrochemical Sector Also Shows Strong Performance... Returns to Levels Seen During Boom a Decade Ago

[Asia Economy Reporter Minwoo Lee] LG Chem is expected to experience a boom comparable to that of 10 years ago. Analysts attribute this to the strong performance of the battery division and the petrochemical product profit margins rebounding to record levels.

On the 12th, Daishin Securities estimated that LG Chem would achieve sales of 7.485 trillion KRW and an operating profit of 372.2 billion KRW in the second quarter of this year. Compared to the same period last year, sales increased by 4.3% and operating profit by 41%. These figures also significantly exceeded market consensus estimates of 7.188 trillion KRW in sales and 299 billion KRW in operating profit.

The better-than-expected performance was mostly driven by the battery division. It is expected to turn a profit with an operating profit of 45.7 billion KRW. This not only surpasses the previous estimate of an operating loss of 6.8 billion KRW but also greatly exceeds the first quarter’s operating loss of 51.8 billion KRW. Sangwon Han, a researcher at Daishin Securities, explained, "Electric vehicle batteries (EVB) improved profitability due to yield enhancements in the new Polish production line, and from the second half of the year, yield stabilization is expected to lead to normalization of the cost structure. Additionally, small batteries saw significant profit growth driven by strong sales centered on cylindrical types due to Chinese electric vehicle demand." Furthermore, energy storage systems (ESS) are expected to continue overseas business growth, with second-quarter battery division sales projected to increase by 29% from the previous quarter to 2.921 trillion KRW.

The petrochemical sector is also expected to grow smoothly. Profitability improved due to the effect of low-cost raw material input following the decline in oil prices. The market conditions for key downstream products such as acrylonitrile butadiene styrene (ABS), considered a "cash cow" business, are also favorable. Han said, "Thanks to the drop in oil prices and increased demand from China, the cumulative average ABS spread (the difference between raw material and product prices, based on SM/BD deduction) this month reached $647 per ton, the highest since 2010 and the 2017?2018 boom period. Products benefiting from COVID-19 such as NB latex and IPA also showed favorable market conditions." He added, "Although the chemical industry overall will continue to face sluggish market conditions, diversification of the product portfolio has demonstrated outstanding performance stability during the downcycle."

For these reasons, Daishin Securities maintained a "Buy" rating on LG Chem and raised the target price by 22% to 550,000 KRW. The closing price the previous day was 463,000 KRW.

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