LG Chem has earnings surprise in second quarter

Industry

Published: 31 Jul. 2020, 18:22 Updated: 31 Jul. 2020, 18:28

LG Chem has earnings surprise in second quarter

LG Chem employees are looking into lithium-ion batteries. [JOONGANG ILBO]

LG Chem announced an earnings surprise for the April-June period, boosted by record quarterly profits for batteries.

Despite the pandemic's drag on the world economy, the company's net profit jumped fivefold on year to 419 billion won ($351.9 million). This also marked an 11-fold increase from the first quarter.

Quarterly revenue was 6.9 trillion won, up 2.3 percent on year. Operating profit during the period jumped 177.7 percent to 571.6 billion won, beating analyst projections of 410.3 billion, according to FnGuide.

A notable factor was record profits on battery sales. In the second quarter, LG Chem saw an operating profit of 155.5 billion won in the battery segment, up from a 128 billion operating loss the same period last year. Quarterly revenue rose 40 percent to 2.8 trillion won.

The electric vehicle (EV) battery business was finally starting to become a profit center. LG doesn't break down profits by type of battery, but the company said in a Friday conference call that profitability of its EV battery business was in the “low single-digits,” referring to a 2 to 3 percent level.

Exactly when LG Chem, the top battery maker in the country, would start making money from EV batteries has been a longstanding question. After starting development in 2000, the company defended the potential for EV batteries as a future growth driver, despite massive investments and zero profit.

LG’s EV battery business first saw profits in the fourth quarter of 2018 but went back in the red afterwards.

LG says it expects EV battery profits will continue to expand in this year's second half. Its expectation is that profits from the business will grow at an annual average of 30 percent in the next few years.

One important contributor is the company’s EV battery plant in Poland, its largest, finally reaching stable production after completion in 2018.

“EV battery profitability for the second quarter marked a low single-digit number, but we’re expecting to see this figure improve on quarter until the end of the year,” said Chang Seung-se, a senior vice president who leads LG Chem’s energy strategy, in a Friday conference call. "The positive momentum is something we’ll be able to maintain."

For the battery business overall, Jang projected 25 percent on-quarter growth in sales for the third quarter, citing recovery in demand for IT devices and EV customers.

LG Chem’s second-quarter results were also backed by a strong performance in the company’s older business: petrochemicals. Operating profit in that segment during the period jumped 13.7 percent on year to 434.7 billion won. Revenue slumped 15 percent on year to 3.3 trillion won.

Low crude oil prices pulled down product prices and revenue, LG explained, but the demand recovery in China led to increased profits. The company expected the positive momentum to continue in the third quarter as global lockdowns are gradually ended.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]