LG Chem surprises market with record Q3 earnings estimates

LG Chem Ltd., South Korea’s largest chemical and electric vehicle battery maker, expects its quarterly revenue and operating profit to rise to all-time highs in the July-September period thanks to robust petrochemical business sales.

The company said in a regulatory filing on Oct. 12 that its operating profit likely rose 159% to a record 902 billion won ($785 million) on a consolidated basis in the third quarter, from 348.8 billion won a year earlier.

LG Chem’s operating profit beat the market consensus. In its latest research report, Hyundai Motor Securities forecast the company’s operating profit at 850.8 billion won, the highest estimate among local brokerages.LG Chem said its revenue likely increased 8.8% to a record 7.51 trillion won from 6.9 trillion won. Its sales estimate missed market expectations of around 8 trillion won.

The company didn’t provide net income or break down performance by division. It is due to release a full report on its third-quarter results next week, ahead of its Oct. 30 shareholder meeting on plans to spin off its battery unit.

Shares of LG Chem fell after its earnings guidance. The stock was trading 2.2% lower at 677,000 won in morning trade, underperforming the broader Kospi market’s 0.2% gain.

CASH COW PETROCHEMICAL PRODUCTS

The company didn’t elaborate on the reason for its upbeat outlook but analysts attributed it to an increased margin and brisk sales of its petrochemical products in the pandemic era.

Analysts said demand for its key products such as acrylonitrile butadiene styrene (ABS), polyvinyl chloride (PVC) and acrylonitrile butadiene latex (NB Latex), used to make plastic wrapping and a variety of industrial and consumer plastic goods, was rising amid the COVID-19 pandemic.

The company’s petrochemical business is widely expected to have posted around 800 billion won in operating profit in the third quarter.

Its rechargeable battery business, however, fell short of expectations with its operating profit estimated in the 100 billion won range, below the 155.5 billion won it posted in the second quarter, analysts said.

A dominant battery player in the European market, LG Chem saw weaker-than-expected EV battery revenue in the third quarter amid sluggish electric vehicle sales in Europe, they said. LG Chem is the world’s largest EV battery manufacturer and supplies batteries to major global electric car makers, including Tesla Inc., as well as local automakers Hyundai Motor Co. and Kia Motors Corp.

It is the first time for the company to release its quarterly earnings guidance before the mandatory final report due later this month. Industry watchers say the move is aimed at alleviating market concerns over the battery business spin-off plan, by providing shareholders and investors with clearer earnings projections.

Shares of LG Chem have sharply fallen since its announcement in mid-September that it would spin off its lucrative battery business as a subsidiary, as investors betting on the growth of electric cars and batteries dumped the chemical maker’s stock.US securities firm Morgan Stanley, however, said in a Sept. 23 research note that LG Chem has upside potential as a chemicals company even after its battery business spin-off.

Morgan Stanley upgraded LG Chem to overweight from equal weight and raised its target price for the stock to 800,000 won from 750,000 won.

Write to Jae-Kwang Ahn at ahnjk@hankyung.com
In-Soo Nam edited this article.