Shares of LG Chem Ltd., South Korea’s top chemical product and lithium-ion battery provider that had grappled with its disappointing lithium-ion battery business in China and concerns over its merger with LG Life Sciences until the third quarter of last year, have picked up thanks to the improved earnings in the fourth quarter and a recovery in the price of its mainstay petrochemical products.

LG Chem shares soared 23 percent to 270,000 won ($233.52) on January 26 from 219,500 won on November 21 last year. They closed Wednesday at 272,500 won, up 4.01 percent or 10,500 won from the previous session.

LG Chem shares have lately gained further traction after reporting its operating profit on a consolidated basis during the October to December period last year that rose 31.2 percent compared to the same period of the previous year and sales up 9.3 percent.

Market analysts estimate the company would record 2.28 trillion won in operating profit on sales of 23.51 trillion won in 2017, up 14.9 percent and 13.8 percent respectively from 2016. The company said on January 26 during an earnings conference call that it aimed to rake in 22.82 trillion won in sales on a consolidated basis in 2017.

Investors have high expectations on the chemical firm as the price of petrochemical products has been rebounding rapidly since November 2016. Market experts believe that the price would continue to climb due to the low inventory stocking and stable demand in the Chinese market.

In particular, the rising raw material price of the company’s mainstay product acrylonitrile butadiene styrene (ABS), a plastic material used in IT and auto products, should be reflected in its product price, helping to improve its profit. The market for polyvinyl chloride (PVC) is also expected to recover following the Chinese government’s easing of its environmental regulations.

The merger with LG group’s biopharmaceutical unit LG Life Sciences, which sparked investors’ concerns previously, would benefit the company in the long run because the addition of the new business with high growth potential is expected help prevent LG Chem from being swayed by the volatile petrochemical market, according to market analysts. The merger is a win-win for LG Life Sciences as well because it would be able to count on LG Chem’s finance to expand investment in research and development. Its earnings will likely be reflected in LG Chem’s financial statement starting the first quarter of this year.

“We will invest 150 billion won to 200 billion won in the bio business including LG Life Sciences and Farm Hannong this year,” LG Chem said during the conference call last week. Its key subsidiary Farm Hannong, a pesticides and fertilizer manufacturer, is expected to see its earnings improve as the peak season for its sales has entered.

By Park Yun-gu

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]