[Click eStock] "LG Chem, Battery Premium Expected This Year... Buy Expansion"

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating and a target price of 410,000 KRW for LG Chem on the 6th, citing expected growth in the battery division.

The current estimated value of LG Chem's business units is 27 trillion KRW for the battery division and 10 trillion KRW for the chemical division. Sangwon Han, a researcher at Daishin Securities, stated, “Although there is a possibility of a temporary demand slowdown in the secondary battery business due to COVID-19, this is not a structural change, so investment remains valid based on the growth potential of electric vehicle batteries.”

The company's operating profit for the first quarter is expected to turn positive to 165.3 billion KRW compared to the previous quarter. It is also forecasted to meet market expectations (153.1 billion KRW). Researcher Han explained, “The significant increase in profit compared to the previous quarter is due to the expiration of a 300 billion KRW provision related to domestic ESS fires in the battery division. However, excluding this, the actual profit of the battery division is judged to have decreased.” In fact, the battery division is estimated to have experienced a decline in sales and profitability due to entering the off-season for small batteries and increased fixed costs from the operation of a new factory in Europe, resulting in somewhat lower profitability.

For the first quarter, the battery division's sales are expected to be 2.28 trillion KRW and operating profit 44.7 billion KRW, representing a 36% decrease from the previous quarter and continued losses. The petrochemical division showed a recovery in spreads since December but is expected to see a slight decline in profitability compared to the previous quarter due to the negative lagging effect from the sharp drop in oil prices.

The annual operating profit for this year is projected to grow 61% year-on-year to 1.44 trillion KRW. Researcher Han said, “The battery division's sales are expected to be 13.9 trillion KRW, reflecting the possibility of demand slowdown due to COVID-19,” adding, “Operating profit is expected to turn positive to 49.2 billion KRW compared to last year, with growth in the ESS division anticipated due to the expiration of large-scale one-time costs.”