National Pension Service Includes Chemicals, Excludes Food and Telecommunications

Lotte Chemical, SK Chemical, etc.
Significant Increase in Shares in Q4 Due to Strong Performance and New Business Expectations

CJ CheilJedang, Nongshim, Samyang Foods, etc.
Defensive Stocks Largely Divested

[Asia Economy Reporter Park Jihwan] It has been revealed that the National Pension Service significantly increased its stakes in chemical-related stocks in the fourth quarter of this year. Conversely, the shareholding ratios in food and telecommunications sectors, which are considered representative defensive stocks, were reduced.

According to financial information provider FnGuide on the 20th, among the stocks in which the National Pension Service held more than 5% stakes from last month 1st to this month 18th, the largest increases were in chemical industry stocks such as Lotte Chemical (8.73%→10.01%) and SK Chemical (9.02%→10.13%). Within less than two months, they increased their stakes by 1.28 percentage points and 1.11 percentage points, respectively. Analysts suggest that the National Pension Service’s short-term increase in these stocks’ shareholding ratios reflects favorable earnings forecasts due to rapidly growing demand as well as expectations for new business ventures.

Lotte Chemical has been on a clear upward earnings trajectory since the third quarter of this year. In Q3, it posted sales of 3.045 trillion KRW and operating profit of 194 billion KRW, marking a 1.14-fold increase in sales and a 5.9-fold increase in operating profit compared to the previous quarter. This strong performance is attributed to cost reductions from low oil prices and a notable recovery in demand for key products. The Seosan Daesan plant, which halted operations in March due to an explosion accident, is expected to return to normal operations from December, potentially driving additional earnings. Next year, global economic recovery and the establishment of a non-face-to-face (untact) lifestyle due to the COVID-19 pandemic are expected to expand demand for related daily necessities.

In the case of SK Chemical, the third quarter saw record quarterly earnings driven by improvements in its two major growth engines: copolyester and bioscience. Sales and operating profit surged by 22.1% and 196.4% quarter-on-quarter to 352.1 billion KRW and 52.3 billion KRW, respectively. Seogeunhee, a researcher at Samsung Securities, stated, "Profitability has greatly improved due to increased sales of copolyester and influenza vaccines," adding, "In the fourth quarter, contract manufacturing organization (CMO) production of COVID-19 vaccines will be in full swing, maintaining high profitability." SK Chemical has signed a COVID-19 vaccine CMO contract with the British pharmaceutical company AstraZeneca.

During this period, the National Pension Service also increased its stakes in chemical companies such as Hanwha Solutions and Daehan Petrochemical by 0.50 and 0.42 percentage points, respectively. Lee Jiyeon, a researcher at Shin Young Securities, explained, "The chemical sector’s profitability is rapidly improving due to low-cost raw material inputs and increased demand for disposable containers, hygiene products, building materials, and IT products as indoor activities have increased amid COVID-19." She added, "Next year, unprecedented government policy support worldwide is expected to raise per capita consumption, so the boom in chemical product demand is likely to continue for the time being."

On the other hand, the National Pension Service significantly reduced its holdings in defensive sectors such as public goods and daily necessities in the fourth quarter. Stakes in CJ CheilJedang, a representative food stock, decreased by 0.32 percentage points, and Nongshim by 0.49 percentage points.

KT&G and Samyang Foods also saw reductions in holdings by 0.22 and 0.32 percentage points, respectively. It is speculated that the National Pension Service considered realizing profits from these sectors, which had risen sharply due to COVID-19 in the first half of the year, and shifting its portfolio toward sectors such as semiconductors, steel, chemicals, and machinery in anticipation of domestic demand recovery.

The National Pension Service also disposed of shares in telecommunications, a traditional defensive sector, including SK Telecom (11.58%→11.41%) and LG Uplus (13.09%→12.86%). Holdings in financial sectors such as Korea Financial Group (13.54%→13.50%), BNK Financial Group (13.48%→13.47%), and KB Financial Group (9.97%→9.96%) also saw slight decreases.