We simply give a buy recommendation on LG Chem. And the following is the reasons why we give a buy recommendation. Fist of all, it is forecasted that the operating profits of all parts of companies for 2010 are expected to increase by 11.5% from a year earlier. Secondly, the operating profit and outer appearance of information and electronics division/materials division is expected to constantly increase by expansion of high-capacity secondary battery and also by increase of supply on LCD panels. Lastly, next generation growth engine businesses such as medium to large automotive batteries for and LCD glass substrates businesses are progressing smoothly, strategically approaching to the future growth businesses.
The sales and operating profit of the headquarter for the first quarter resulted in 3.6653 trillion won and 504.8 billion won respectively, that is 25% and 21% year-on-year increase respectively. The operating profit and external growth of both petrochemical and information and electronics/material sector seemed to be increased from a year earlier. For the petrochemical division, external and operating profit resulted in 2.5088 trillion won and 375 billion respectively, a 17% and 19% rise from a year earlier. Despite regular repair and maintenance work that was conducted on Yeosu NCC last March, the upward run of continued during the first quarter due to increase of demand in chemical products in China, increase of intra - NCC regular repair and maintenance, delay in newly increased quantities and hiccup in operations.
For the information and electronics/material sector, the first quarters sales and operating profit resulted in 1.1565 trillion won (44% increase year-on-year) and 129.8 billion won (26% increase year-on-year) respectively, due to sales increase of applications that require high-capacity storage of batteries such as display panels and netbooks.
Sales increase for the second quarter is expected to continue. For the petrochemical sector, demand for chemical products in China is expected to increase. China’s automobile production and sales per month have already outrun that of the U.S. with increase of disposable income and economy stimulus policy that began in 2009. Therefore, the price for BD (Butadiene, base material of synthetic rubber) in which LG Chem produces have risen up to US$2,000 per ton, resulting in higher profitability. Additionally, reduction policy on construction materials which began this year and production decrease of coal pvc, which led to increase of pvc sales quantity and 20% increase of its price.
Operating profit of petrochemical sector for the second quarter is forecasted at 477.2 billion won which is a 6% increase from a year earlier. Information and electronics/ material sector is expected to enjoy profit increase through constant growth. Demand for LG Chem’s polarizers in Taiwan and Japan is expected to increase with production of VA polarizers and operation of super-wide line (2,300 mm). For the secondary battery division, both growth rate and profitability are expected to rise with more orders from existing clients including Nokia, HP and Dell as well as expansion of batteries. Information and electronics/material sector’s operating profit for the second quarter is expected to increase 40% year-on-year, resulting at 161.9 billion won.