LX Hausys Exits Losses on Remodeling Demand, While KCC Stumbles on Weak Silicone Performance

LX Hausys Q1 Operating Profit Soars 550% Year-on-Year
B2C Sales of Windows and Wallpaper Rise on Increased Transactions
KCC Operating Profit Down 14.8%, Q2 Outlook Remains Uncertain

LX Hausys and KCC, both building materials companies, posted contrasting results in the first quarter. LX Hausys, which reported a loss in the fourth quarter of last year, exceeded market expectations this quarter, buoyed by strong demand for home remodeling. In contrast, KCC fell short of expectations, as profitability in its silicone and paint businesses recovered more slowly than anticipated.

First Quarter Performance Results of LX Hausys and KCC by Business Division.

LX Hausys Improves B2C Profitability on Increased Transaction Volume

According to industry sources on May 11, LX Hausys achieved operating profit of nearly 50 billion won in the first quarter, marking the first time in about three years since Q2 2023. Q1 operating profit surged 550% year-on-year to 45.9 billion won, with revenue of 814.7 billion won. As the grace period for heavy capital gains tax on multiple home owners nears its end, the volume of housing transactions has increased, fueling demand for remodeling. This led to significant growth in B2C (business-to-consumer) sales of building materials such as windows, flooring, and wallpaper.

The building interior materials segment, which accounts for 70% of total sales, posted 551.5 billion won in revenue and 26.8 billion won in operating profit (operating margin of 4.9%). To raise its B2C market share, LX Hausys opened the 'LX Z:IN Flagship' in Nonhyeon-dong, Gangnam-gu at the end of last month, allowing customers to experience its building materials in one place.

Sales of automotive materials and industrial films climbed 8.3% year-on-year to 264.3 billion won, driven by increased overseas sales of automotive fabrics and decorative films. Operating profit for this segment was 19.1 billion won, with an operating margin of 7.3%. Results improved due to a higher exchange rate, increased overseas sales especially in North America, and the launch of new vehicles. LX Hausys stated, "We will expand high-value-added products in the building interior materials segment and strengthen domestic B2C distribution competitiveness. In the automotive materials and industrial films segment, we plan to upgrade our business portfolio by enhancing overseas business competitiveness."

From the second quarter, both building materials and automotive parts & industrial films businesses may face uncertainties due to volatility in international oil prices and freight rates. Kim Kiryong, a researcher at Mirae Asset Securities, said, "With higher logistics costs and the price of key chemical raw materials such as PVC due to the Middle East war, and sluggish B2B (business-to-business) market performance from delayed recovery in new housing supply, annual profit is expected to be higher in the first half of the year and lower in the second half."

KCC, Silicone Operating Profit Down 73%... Q2 Outlook Remains Weak

Competitor KCC saw first-quarter operating profit come in about 10% below market expectations due to weak performance in its silicone business. Operating profit fell 14.8% year-on-year to 88.1 billion won, while revenue rose 1.7% to 1.6264 trillion won.

Profitability in the silicone business, which accounts for half of total revenue, deteriorated significantly. As a result, even with higher sales in building materials, overall results worsened. By business segment, KCC's estimated operating profit was 66.1 billion won for paints, 26.5 billion won for building materials, and 5.5 billion won for silicone. Compared to the previous year, these represent increases of 18% and 2% for paints and building materials, respectively, and a 73% decrease for silicone. The weak profitability in silicone stemmed from higher transportation costs for silicone and related materials, as well as a sales focus on lower value-added products.

The outlook for the second quarter is also challenging. For building materials and paints, profit is expected to decline as cost increases from the Middle East war are fully reflected. In addition, naphtha prices have surged and prices of key raw materials including PVC have soared, but government policy focused on price stability makes it difficult to raise selling prices. However, non-operating profit is expected to increase significantly as the value of investment assets rises. The value of KCC's holding in Samsung C&T shares stood at 4.0738 trillion won at the end of last year and surpassed 7.6 trillion won as of May 11.

Cho Hyunryul, an analyst at Samsung Securities, explained, "In the case of paints, the delayed increase in selling prices for some domestic product lines is likely to keep profitability weak at the start of the quarter, but from mid-quarter we expect price hikes to begin."

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