[Click eStock] "LG Chem, 1Q Operating Profit 1 Trillion Won... 'Record-Breaking' Outlook"

Expecting Record Quarterly Performance... Petrochemical Earnings Rise Due to North American Cold Wave

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] LG Chem is expected to enter the era of 1 trillion KRW operating profit in the first quarter of this year. It is analyzed that unprecedented performance was achieved due to a short-term supply shortage caused by the cold wave in the North American region.

On the 31st, Meritz Securities forecast that LG Chem will achieve consolidated sales of 10.7643 trillion KRW and operating profit of 1.0141 trillion KRW in the first quarter of this year. Compared to the same period last year, sales are expected to increase by 51.3% and operating profit by 328.8%. These figures exceed market consensus by 15.5% and 14.7%, respectively. This is LG Chem's highest quarterly performance ever.

Operating profit by business division is estimated at 798.5 billion KRW for Basic Materials, 135.4 billion KRW for Energy Solutions, and 33.4 billion KRW for Advanced Materials. The main reason for the upward revision of performance estimates was Basic Materials. Researcher Noh Woo-ho of Meritz Securities explained, "Although a one-time cost of about 80 billion KRW was reflected due to the shutdown of Yeosu NCC, unprecedented performance will be achieved as a short-term supply shortage in petrochemicals occurred due to the cold wave in North America last month. In particular, polyvinyl chloride (PVC) and low-density polyethylene (LDPE) are showing record-high profitability." PVC benefited from limited supply amid recovery in the construction market and increased demand for gloves. LDPE's profitability improvement is attributed to expanded demand in the health and hygiene sectors.

Meanwhile, Energy Solutions' operating profit is estimated at 135.4 billion KRW, with cylindrical batteries expected to contribute 105 billion KRW and medium-to-large batteries 11.9 billion KRW. The main customer, Tesla, has already announced a plan to produce 1 million units annually this year. Profitability is expected to be maintained due to supply shortages of cylindrical batteries throughout the year.

LG Chem is also responding to Volkswagen's announcement of its own battery supply plan, which was a negative factor for LG Chem's stock price. LG Chem recently announced aggressive plans to increase electric vehicle battery production in the United States. Production capacity will be expanded up to 145 GW by 2025, including the existing 5 GW. It is expected to increase market share in the U.S. by strengthening business cooperation, including investment in a second plant with GM, and securing new customers. Researcher Noh said, "This will offset uncertainties in maintaining market share in Europe in the mid-to-long term due to Volkswagen. LG Energy Solution is securing economies of scale to respond to cost reduction, technological innovation, and the expanding market size."