[Click eStock] "Yanggeukjae, Advanced Materials... LG Chem's Growth Engine Hidden Behind Batteries"

Concerns Over LG Energy Solution's IPO Are Excessive... Strong Growth Drivers Ahead

[Asia Economy Reporter Minwoo Lee] Despite recent stagnation in LG Chem's stock price following the spin-off and listing of its secondary battery division, analysis suggests that the company still possesses abundant growth drivers. It is evaluated that LG Chem can now fully utilize its strong cash-generating capability to expand its existing materials business and value chain.

On the 28th, Korea Investment & Securities maintained its 'Buy' rating and target price of 1.16 million KRW for LG Chem, citing these reasons. The closing price the previous day was 835,000 KRW.

Since May, LG Chem's stock price has been adjusting due to concerns over a discount in equity value ahead of the listing of LG Energy Solution in the second half of the year. Although growth potential in the battery sector remains, the sharp revaluation trend since the second half of last year is believed to have paused. Investment sentiment has also weakened as petrochemical earnings, excluding the secondary battery business, are expected to have peaked after the second quarter.

Choi Go-woon, a researcher at Korea Investment & Securities, stated, "Even after the LG Energy Solution listing, growth drivers remain in the advanced materials sector, centered on cathode materials. At the same time, LG Chem’s abundant cash-generating ability can be leveraged to expand the materials business and value chain, highlighting the diversity of new growth drivers for investment."

For the second quarter of this year, consolidated sales are forecasted at 10.173 trillion KRW and operating profit at 1.017 trillion KRW, which is 14% below market consensus. Operating profit is expected to decline by 28% compared to the previous quarter due to a return to losses in the battery division. Growth in electric vehicle volumes slowed due to vehicle semiconductor supply issues, and a one-time provision of 400 billion KRW related to an energy storage system (ESS) recall is expected to result in an operating loss of 110 billion KRW. However, a 1 trillion KRW settlement payment from SK Innovation is anticipated as non-operating income. Meanwhile, petrochemical operating profit is estimated to have increased by 10% quarter-on-quarter to 1.08 trillion KRW, supported by strong market conditions for key products such as ABS and PVC. Advanced materials performance is also expected to continue its growth trend in line with expanded cathode material volumes.

Once short-term supply and demand uncertainties pass, both the battery and existing businesses are expected to be revalued. Researcher Choi said, "Concerns over the LG Energy Solution listing have been anticipated risks since last year, and the equity value reflected in the current stock price is already sufficiently discounted compared to overseas competitors. Once short-term supply uncertainties are resolved, the previously obscured growth potential of advanced materials and the structural improvement of the chemical division will come to the forefront."