LX Hausys Faces Decline Due to Heavy Reliance on Building Materials
KCC Achieves Record Results Thanks to Silicone Business
Amid the ongoing downturn in the construction and real estate markets, last year brought mixed results for the domestic building materials industry. LX Hausys, which heavily depends on building materials, could not avoid sluggish performance, whereas KCC achieved record-breaking results by effectively diversifying its business. As the market downturn is expected to persist for the time being, the need for diversifying business portfolios is anticipated to become even more prominent.
According to the Financial Supervisory Service's electronic disclosure system on the 10th, KCC's operating profit last year rose 50.7% year-on-year to 471.1 billion KRW. This is the highest performance ever recorded since 467.7 billion KRW in 2022. Sales also increased by 5.9% to 6.6588 trillion KRW.
In particular, the fourth-quarter results surged sharply. Sales reached 1.6575 trillion KRW, up 4.7% from the same period last year, and operating profit rose 69.8% to 98.3 billion KRW. The company explained, "Despite the challenging environment, we achieved solid results with a robust portfolio."
The reason KCC performed well despite the recession is due to its business structure reorganization. In 2019, by acquiring Momentive, one of the world's top three silicone companies, KCC expanded its business from being centered on building materials to silicone. The scope of the silicone business, previously focused on general-purpose products, was expanded into high value-added markets. Currently, 45% of KCC's sales come from silicone. Even when combined, building materials (16%) and coatings (29%) account for less than half. Especially recently, with the growing demand for semiconductors, the demand for silicone used in semiconductor wafers has also surged.
Researcher Park Sera of Shin Young Securities analyzed, "Among the three business divisions?building materials, coatings, and silicone?building materials saw a decline in sales for the fourth quarter following the third quarter compared to the previous year, showing sluggishness. Coatings were also affected by the seasonal downturn in the fourth quarter, but thanks to increased volume in silicone, the company's overall sales have continued moderate growth."
On the other hand, LX Hausys struggled last year. Sales increased slightly by 1.3% to 3.572 trillion KRW, but operating profit fell 11.3% to 97.5 billion KRW. Especially, fourth-quarter operating profit plunged 44.6% year-on-year to 4.9 billion KRW. The company explained, "Despite the downturn in the construction and real estate markets, sales slightly increased due to higher sales of industrial films, flooring, and wallpaper, but operating profit declined compared to the previous year due to rising logistics and raw material costs."
The reason LX Hausys faced difficulties is due to a business structure that is the exact opposite of KCC's. 72% of the company's total sales come from building materials. Among them, about 60% of the building materials division's sales are B2B (business-to-business) focused. As the construction market contracted, it was directly hit.
Since the number of newly completed houses is expected to decrease compared to last year, it is analyzed that it will be difficult to achieve a performance rebound with the current sales structure. Researcher Lee Eunsang of NH Investment & Securities explained, "Considering that more than half of the building materials division's sales are B2B, there will be an expansion in scale about two years after the point when construction starts to rebound. A decline in scale in 2025 is inevitable."
Accordingly, LX Hausys plans to find a breakthrough by expanding B2C (business-to-consumer) sales. The company intends to increase sales of key products such as windows, flooring, and wallpaper in the domestic market and boost sales of industrial films, surface materials, and flooring in overseas markets.
A company official stated, "As uncertainty in the domestic and international business environment is expected to increase more than ever this year, we plan to prioritize crisis management focused on securing profitability."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
