LG Chem swings to Q4 profit on car battery demand but misses forecast

[SEOUL] South Korea's LG Chem reported a profitable fourth quarter on Wednesday on demand for its car batteries but missed expectations because of the costs from splitting off the battery unit and the charges to cover recalls.

The maker of chemicals and batteries, whose wholly-owned battery subsidiary LG Energy Solution supplies Tesla, posted an operating profit of 674 billion won (S$810 million) versus a loss of 33 billion won in the same period a year earlier.

The result is lower than the 777 billion won Refinitiv SmartEstimate derived from 19 analyst estimates.

Revenue rose 20 per cent to 8.9 trillion won, LG Chem said in a regulatory filing. The battery business, which was spun off beginning on Dec 1, reported a profit of 116 billion won after a loss a year earlier.

"LG Chem was able to post a profit this past quarter because of continued strong demand for its electric car batteries, especially from Tesla, but the company's mainstay petrochemical business suffered in the fourth quarter after its naphtha cracker shut down in November," Yoon Jae-sung, an analyst at Hana Financial Investment, said before the results release.

In the fourth quarter, the petrochemical business unit reported operating profit of 569 billion won, down from the third quarter's 722 billion won but up from 316 billion won a year earlier.

LG Chem said on Wednesday it restarted its naphtha cracker at Yeosu on Jan 18 and aims to operate the cracker at full capacity this week.

The cracker, which can produce 1.2 million tonnes of ethylene per year, was shut in November after a fire.

Analysts also said future profits may be impacted as funds are set aside to cover the costs of two recalls.

Those include the recall of Hyundai Motor Co's Kona Electric, which uses batteries produced by LG Energy Solution, as well as a recall of LG Energy Solution's residential energy storage batteries in the US.

LG Chem saw strong demand for its electric car batteries last year. That helped the battery business swing to a profit for the first time in the April to June quarter backed by global automakers' shift from the combustion engine to electric vehicles to comply with environmental regulations.

LG Chem shares, which rose nearly 160 per cent last year, closed down 2.3 per cent versus the broader Kospi's 0.6 per cent fall.

REUTERS

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