LX Hausys Q3 Operating Profit Down 37%
Raw Material Price Surge Hits Amid Construction Slump
KCC Q3 Operating Profit Up 42%
Impact of Diversified Paint and Silicone Businesses
The third-quarter performance of KCC and LX Hausys, the twin leaders in the building materials industry, diverged. While both companies saw a decline in their core building materials business, KCC's new silicone business posted strong results.
According to both companies on the 13th, KCC's sales in the third quarter increased by 5.2% year-on-year to KRW 1.6342 trillion, and operating profit rose 41.7% to KRW 125.3 billion. Although the building materials segment suffered due to the downturn in the construction market, the paint and new silicone segments helped defend overall performance.
According to an analysis by financial information firm FnGuide, the silicone segment's operating profit is estimated at KRW 25.2 billion, marking three consecutive quarters of improvement. Last year, the silicone segment recorded an operating loss. KCC officially entered the silicone business in 2019 by forming a consortium with private equity firm SJL Partners and acquiring Momentive, one of the world's top three silicone companies.
KCC's paint segment also showed strong performance in the third quarter. The operating profit for this business is estimated at KRW 55 billion, driven by increased demand for marine coatings and continued strong performance from overseas subsidiaries. On the other hand, the building materials segment's operating profit is estimated to have decreased by 20% from the previous quarter to KRW 42.8 billion due to the prolonged downturn in the construction market.
A KCC representative explained, "The third quarter is the off-season for the silicone industry, so the pace of profitability improvement slowed compared to the first half," but added, "The improvement trend itself continues, and despite the unfavorable construction market, we maintained solid performance in building materials and paints."
In contrast, LX Hausys saw a significant decline in overall performance. LX Hausys' third-quarter sales were KRW 890.1 billion, a 3% increase year-on-year. However, operating profit during the same period fell 36.9% to KRW 22.4 billion.
The difference in performance between the two companies stemmed from business diversification. As of the first half of this year, building materials accounted for 72% of LX Hausys' total sales, whereas for KCC, it was only 16%. KCC has been expanding sales in the paint and silicone segments annually. As the domestic and international construction market effects persist, the performance gap between the two companies is expected to widen.
The industry views the downturn in the U.S. construction market as a factor contributing to LX Hausys' deteriorating performance. LX Hausys' high-margin product, Eastern, saw a decline in profit margins due to sluggish sales caused by the downturn in the U.S. housing market. Eastern is a premium artificial marble interior material used for kitchen walls and countertops, with about 80% of its sales coming from North America. The concentration of the business portfolio in the building materials segment made the impact of the construction market downturn more severe.
A LX Hausys representative said, "Operating profit decreased year-on-year due to rising logistics and raw material costs," adding, "In the fourth quarter, we plan to accelerate our domestic B2C market penetration with strategic products such as window ViewFrame, sheet flooring XComfort, and wallpaper Diamant, while focusing on securing profitability through crisis management that swiftly responds to rapidly changing global conditions and cost reduction efforts."
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