[Click eStock] "LG Sangsa, Trading Business Value Depends on Raw Material Prices"

[Asia Economy Reporter Eunmo Koo] Hana Financial Investment diagnosed that the value of LG Sangsa's core trading business depends on raw material prices, so it is necessary to monitor future price trends. The investment opinion and target price were maintained at ‘Buy’ and 18,000 KRW, respectively.

On the 8th, researcher Jaeseon Yoo of Hana Financial Investment forecasted in a report that LG Sangsa's operating profit for the third quarter of this year would fall short of consensus. Researcher Yoo stated, “Despite the core trading business turning a profit in industrial goods and solutions, the continued deficit in energy and palm sectors due to weak coal prices is holding back performance,” adding, “Although a partial reduction in losses is expected due to rising palm oil prices, a recovery in the coal market, which has a high weighting, is urgently needed.”

The third-quarter sales are estimated at 2.3 trillion KRW, a 17.6% decrease compared to the same period last year. Researcher Yoo explained, “Although there is a gradual recovery in the trading market, the appreciation of the Korean won and weak raw material prices inevitably lead to a decrease in the scale of industrial goods, solutions, energy, and palm sectors.” Operating profit is expected to increase by 5.3% year-on-year to 30.8 billion KRW. Yoo analyzed, “Energy and palm sectors are expected to continue running at a loss, but the rise in palm oil prices is expected to partially reduce the loss margin. Although OPEX related to thermal coal for power generation decreased due to weak oil prices, expectations for profit growth are limited until coal prices recover.”

He also pointed out the need to observe future trends despite recent increases in Indonesian thermal coal and palm oil prices. Researcher Yoo predicted, “Industrial goods and solutions will perform worse than the previous year due to the negative effects of the KRW-USD exchange rate and volume decline, but a turnaround to profitability is expected compared to the previous quarter. Logistics, while somewhat weaker compared to the second quarter which recorded large-scale growth due to increased air cargo volume, is expected to show solid performance based on a high affiliate ratio.”

Furthermore, he emphasized the necessity to confirm whether the recent rebound in thermal coal prices for power generation will continue. Indonesian thermal coal prices for power generation have been continuously falling but have rebounded since the end of September. Researcher Yoo explained, “Only if a long-term upward trend continues can the energy and palm sector performance stabilize. Although the recent strong palm oil prices and cost normalization may partially reduce losses, the low weighting makes significant improvement unlikely.” He added that the increase in the value of the core trading business, not logistics, depends on the recovery of raw material market conditions, so it is necessary to monitor future prices.

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