S Korea's LG Chem profit margins to stay weak in 2012 - Moody's

20 April 2012 06:12  [Source: ICIS news]

SINGAPORE (ICIS)--Profit margins of South Korea’s LG Chem are expected to remain weak in 2012, compared with a year earlier, on the back of weak demand growth in China, Moody’s Investors Service said on Friday.

The chemicals maker reported on Thursday a 42% year-on-year fall in net profit to won (W) 380.9bn ($334.4m) in the first quarter of this year, while its operating profit fell by 45% to W495.5bn.

"The persistently weak operating fundamentals for its major petrochemical products, stemming from a slowdown in Chinese demand, was the main reason behind LG Chem's weaker-than-expected operating results," says Chris Park, a Moody's vice president and senior credit officer.

LG Chem’s profitability is likely to improve in the “near term”, as the second quarter is the peak season for the petrochemical industry, Moody’s said.

“However, its profit margins should remain weaker in 2012, compared to a year earlier, given the protracted softness in demand growth from China, against the backdrop of the challenging global economy,” the ratings firm added.

Moody's expects LG Chem's earnings before interest, tax, depreciation and amortisation (EBITDA) to fall by 10%-20% year-on-year, but this contraction will not have an immediate impact on its A3 issuer rating and stable outlook.

“Moody's does not expect any further upward rating pressure in the near to medium term, given LG Chem's commodity petrochemicals-centred business portfolio and significant investment program,” it added.

The company was not immediately available for comment.

($1 = W1,139)

By: Nurluqman Suratman

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