LG Chem Forecast to Post 76% Plunge in Q3 Operating Profit; Fine of Up to KRW 1.4 Trillion Raises Concerns

[Financial News] LS Securities expects LG Chem's profitability to deteriorate sharply in the third quarter. The brokerage maintained its Hold rating and lowered its target price to KRW 235,000. The disappearance of one-off effects that boosted second-quarter earnings, along with potential fines related to price fixing in petrochemical products, was cited as a factor weighing on the company.
Jung Kyung-hee, an analyst at LS Securities, said on the 22nd, "In the second quarter, operating profit exceeded market expectations thanks to the effects of using low-cost feedstock following the war in the Middle East, higher product prices, and licensing-out deals in the life sciences business." She added, "However, as most of the benefits to the petrochemicals business from the conflict in the Middle East fade as one-off effects, profitability is expected to come under pressure again in the third quarter."
LG Chem's third-quarter revenue was estimated at KRW 13.592 trillion, with operating profit projected at KRW 142 billion. Revenue is expected to rise 32.6% year on year but fall 4.1% from the previous quarter. Operating profit is forecast to swing to a profit year on year, while plunging 76.3% from the previous quarter. The operating margin is also expected to decline from 4.2% in the second quarter to 1.0%.
The petrochemicals business is expected to weigh on overall profitability as it swings to a loss. Its operating profit is estimated to fall from KRW 427 billion in the second quarter to an operating loss of KRW 136 billion in the third quarter. Advanced materials is expected to post operating profit of KRW 45 billion, while LG Energy Solution is projected to record KRW 291 billion.
The possibility of fines resulting from the price-fixing investigation was also identified as a variable. Prosecutors and the Korea Fair Trade Commission (KFTC) are currently investigating alleged price fixing involving vinyl-chain products such as polyvinyl chloride (PVC), sodium hydroxide (caustic soda), and plasticizers. Jung estimated that LG Chem's fine could range from at least KRW 699.6 billion to as much as KRW 1.3992 trillion, based on the fine criteria revised upward in March and estimated sales of the relevant products over five years. She explained, however, that the actual fine could vary depending on the calculation method, operating rate, and applicable period.
Jung explained, "The price-fixing fine has not yet been finalized, and its amount is difficult to determine, so it was not reflected in the company valuation." She then lowered the target price to KRW 235,000 to reflect changes in earnings estimates and LG Energy Solution's market capitalization. This is 9.2% below the previous day's closing price of KRW 258,500.
[email protected] Bae Hangeul Reporter