LG Chem Walking a Thorny Path in Chemical Stocks but Blossoming Alone

Foreigners and Institutions Flock to Battery Business Profit Improvement
LG Chem Stock Price Rises 11.22% This Month

[Asia Economy Reporter Minji Lee] While chemical stocks are struggling due to the economic downturn and China’s zero-COVID policy, LG Chem is walking a path of success alone. This is because the profits from its battery business have significantly improved, attracting a flood of love calls from foreign investors and institutions.

According to the Korea Exchange on the 8th, LG Chem closed at 704,000 won the previous day, rising 11.22% this month. On a monthly basis, it increased by 18%, and with the continued upward trend, it has recovered to the stock price level seen at the beginning of this year. Compared to last March, when the stock price fell to 437,000 won due to the high-intensity interest rate hikes by major countries, it has surged approximately 61%.

The main drivers behind LG Chem’s stock price rise are foreign investors and institutions. This month, they purchased stocks worth 73.6 billion won and 99.2 billion won respectively, ranking first in net buying and becoming the most favored stock. The basis for this buying spree is solid earnings. In the third quarter, LG Chem recorded an operating profit of 901.2 billion won, a 24% increase compared to the same period last year, exceeding market estimates by more than 6%.

In fact, the chemical industry conditions are not very favorable. As oil prices remain strong and concerns about the economic downturn expand, product spreads have significantly declined. In LG Chem’s case, even PVC (polyvinyl chloride) and ABS (high-performance plastics), which have high market shares, suffered due to China’s zero-COVID policy, which was painful. In the fourth quarter, scheduled regular maintenance (loss of 150 billion won) is expected to lead to a return to losses. The operating profit margin was 1.7%. Hyunggu Jang, a researcher at Heungkuk Securities, explained, "This is the worst market condition, considering that the operating profit margin was 5.3% in the fourth quarter of 2014, when the market was not good, and this is the lowest operating profit margin since 2010."

Instead, the battery-related business was a cash cow. First, the advanced materials division, mostly composed of cathode materials (battery materials) performance, recorded an operating profit of 416 billion won, growing 24% compared to the previous quarter. The operating profit margin reached 16%. The outlook for the advanced materials division is also positive. With the expansion of the cathode material plant in Cheongju, the annual shipment volume is expected to increase significantly from 88,000 tons this year to 120,000 tons by the end of next year, continuing the performance improvement trend.

The stock price rise and strong performance of LG Energy Solution, a battery cell company, also increased investment attractiveness. LG Energy Solution recorded an operating profit of 522 billion won, increasing 166% compared to the previous quarter. Its stock price also jumped 18% in one month, expanding its market capitalization to 137 trillion won.

Experts also advised focusing on strengthening the role within the secondary battery-related business rather than the chemical business going forward. Wooun Choi, a researcher at Korea Investment & Securities, analyzed, "Battery material investments are expected to continue expanding, including cathode material expansion in the U.S. and a European separator joint venture," adding, "LG Chem is currently ahead in technology, metal sourcing capabilities, and customer base."

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