Chemicals: LGs new bread and butter?
Group’s 4 chemical units predict lucrative future in batteries, advanced displays
By Kim Yoo-chul
CHEONGJU, North Chungcheong Province ― LG Group is expected to bank more on its chemical subsidiaries to garner new profits as the conglomerate’s other businesses continue to struggle.
Four LG chemical units ― LG Chem, LG Household & Healthcare, LG Hausys and LG Life Sciences _ said Sunday that they will seek to push up their combined sales to 50 trillion won by 2016.
This translates into more than doubling their turnover in six years since the foursome’s overall revenues amounted to 24.9 trillion won in 2010.
During a media tour last week to provincial cities where the plants of the four LG affiliates are located, group spokesman Jung Jeong-wook said that ``Even the 2016 goal is tentative. We are aiming higher.’’
Leaders of the conglomerate’s conventional revenue sources in the electronics and telecom segments might be sweating as their bottom lines deteriorated in the aftermath of the financial crisis and have failed to make a fast turnaround.
LG Electronics, the group’s flagship, recorded 130 billion won in operating profit during the first quarter of 2011 which is dismal, compared to LG Chem, which racked up 835 billion won over the same period.
And the group’s leader is turning his attention more to chemicals _ after holding discussions with his confidants earlier this year, LG Group Chairman Koo Bon-moo made some meaningful remarks.
``As the electronics market continues to mature, it’s more than crucial for LG to find another competitive edge, and diversification is increasingly a key part of LG’s business model,’’ the chairman Koo said.
Ambitious targets
It may be a tall task for firms of the size of the four LG chemical units to double their weight in just six years. But LG officials point out that the guidance makes sense as the four’s business outlooks are good.
Thanks to the benefits coming from Asia’s economic growth and the disruption of their Japanese rivals in the wake of the March earthquake, they have beaten analysts’ estimates in income statements.
In this climate, investors gain confidence, which has prompted key executives of the four corporations to purchase their shares, officials said.
There are other nuggets _ the demand for chemical products has surged in China and developed markets. Understandably, their stock prices remain strong on the Seoul bourse.
Spokesman Jung said that LG Chem aims for 4 trillion won in sales in rechargeable batteries alone, which are used in electric vehicles.
Ban Ji-hyuk, a LG Chem vice president, told The Korea Times that the chemical unit has been receiving more orders for film used in film-type patterned retarder (FPR) 3D displays and forecast this will pave the way for the entire group to widen the gap with bigger Japanese rivals.
The FPR 3D flat-screen, which is a critical component for LG’s in-house 3D televisions, is the result of a rare partnership with LG Electronics, LG Display, LG Chem and LG Innotek. LG Chem is boosting the output of such film in its Chinese plants.
``The one thing I can confirm is that top-tier liquid crystal display (LCD) panel makers in Japan, China and Taiwan were asking us to supply FPR film samples. Sharp and Panasonic are just a couple of them,’’ Ban said.
In order to find breakthroughs amid stalled growth in the overstuffed domestic cosmetics market, LG Household & Healthcare plans to tap China as its next springboard and its executive Lee Sang-beom said its popular product ``Sum:37’’ will help it achieve this.
In a briefing, the cosmetics brand manager Kim Byeong-yeol said that the items are sold through some 40 local department stores to mark over 100 billion won in sales last year.
``It’s quite difficult for LG to break the entry barrier in the global cosmetics markets dominated by U.S. and French producers. But we are positive about better penetration in the Northern and Southeastern Asian markets because we share some cultural features with them,’’ Kim said.
LG Hausys also announced a plan to make 200 billion won in total revenue for aluminum sashes in the local market by 2012.
It has begun operating its newly-built facility in Ochang with an annual production capacity of aluminum products reaching 3,800 tons.
LG Life Sciences is planning to rank among the top 50 global makers of drugs and will invest more in its existing seven overseas facilities in China, India, the Middle East, Turkey, Brazil, Mexico and Russia.
Reality check
And there are relatively small ventures, which will back up the bold schemes of the four LG chemical sisters including LG-Tostem, a joint venture between Tostem of Japan and LG Hausys.
Tostem has been offering its designs and other key materials to LG’s chemical players.
So far, resin sashes have been widely used in Korea but the demand for premium aluminum sashes rocketed of late due to an increase in the construction of high-rise buildings, according to LG-Tostem representatives.
``We’ve recently filed requests from Samsung officials related to the owner’s family to supply our high value-added aluminum sashes. Other orders are also inundating us,’’ an LG-Tostem official said.
In this climate, LG seems to be sure that its chemical units can reach 50 trillion won in sales by 2016.
``We have no big questions that LG will prosper with the help of chemical businesses. Chairman Koo is willing to spend more than what it will take to secure more top-tier global brands,’’ an LG Group official said.
Market observers also point out that the chemical business will take center stage in the future.
``It’s not surprising to see the rise of chemical affiliates inside Korean conglomerates because they deal in emerging businesses such as solar-cells, batteries and bio-similars,’’ Shinyoung Securities analyst Jeong Kyu-bong said.