LG International
According to NH Company Analysis, while the E&P market remains bearish, LG International is unlikely to book additional one-off losses for its E&P business. In the wake of the firm expanding its organizing and logistics businesses, it is predicted that its net income (excluding minority interests) will turn around in 2015 and move further into positive territory in 2016.
Logistics and organizing divisions to lead growth momentum in 2016
The E&P market remains in a bearish posture in 4Q15: oil is down 11 percent quarter-on-quarter (average so far in 4Q15 vs 3Q15 average), coal is down 9 percent quarter-on-quarter, and copper is down 3 percent quarter-on-quarter. Despite hedging strategies, it seems inevitable that the E&P business will register an operating loss in 2015. Nevertheless, LG International (LGI) is unlikely to book additional one-off losses for its E&P business. It reported a one-off additional loss of 110 billion won (US$96 million) in 2014 and 30 billion won (US$26 million) in 2015.
It says that the LG Group will take further steps to internalize logistics work, expecting the play’s logistics division to post a 2016 net profit of more than 40 billion won (US$35 million). The group’s logistics costs are estimated at around 3 trillion won (US$2.6 billion), out of which LGI accounts for roughly 2 trillion won (US$1.7 billion).
Furthermore, it predicted that the firm’s organizing business will continue to expand. Earnings at the Turkmenistan project to build an ethane cracker have normalized. Moreover, financing for both a desulfurizer for an oil refinery order secured in April at US$940 million for a project that will span 42 months and a gas-to-liquids (GTL) plant order expected in the fourth quarter of 2015 for US$3.89 billion is expected to be completed in the first half of 2016, and both projects are set to launch in the first half of next year. Of note, the company is expected to receive a milestone fee for completing the financing.
LGI: A key company in the LG Group’s governance issue
It is known that LG Corp Director Gwangmo Koo helped facilitate LGI’s acquisition of Pantos Logistics. LGI now holds a 51 percent stake in that company. If Pantos Logistics grows over the mid to long term, there is the possibility that the LG Group may push to publicly list the firm in order to raise capital to pay an inheritance tax. Of note, LG Group Chairman Bonmoo Koo holds a 11.3 percent stake in the LG Corp and a 2.5 percent stake in LGI.
With a number of LG companies set to fill employment positions at the end of the year, it has been reported that LG Electronics’ Vice Chairman Koo Bon-joon may come back to LGI. Of note, Bonjoon Koo was CEO of LGI from March 2007 to September 2010, and he is a major shareholder in the firm, holding a 3.0 percent stake.