[Click e Stocks] LG Chem Maintains Target Price Despite Recall Incident

[Asia Economy Reporter Junho Hwang] Korea Investment & Securities maintained LG Chem's target stock price at 1.06 million KRW on the 21st. Although the recall incident involving Bolt vehicles will impact earnings, the preemptive agreement reached is judged to be positive for the cooperative relationship with GM.

LG Chem's operating profit for the third quarter of this year is expected to fall short of market expectations. This is due to a provision of 620 billion KRW related to the recall of GM's Bolt vehicles. However, since investor sentiment had been more concerned about the uncertainty of the recall incident, the preemptive cost agreement is seen as positive.

Regarding this GM recall, the LG Group plans to bear a total cost of 1.4 trillion KRW. The share of LG Energy Solution within the group is 50%, which is higher than the first provision made in August, but it is still not a burdensome level compared to LG Chem's profit strength and growth potential. The agreement with GM is more positive in that it reconfirms there will be no problems in the future cooperative relationship. Although regaining market trust regarding the possibility of fire will take time, it is excessive to doubt the competitiveness and shipper relationships that have been built up so far.

Sales are estimated to decrease by 5% from the previous quarter to 10.8 trillion KRW, and operating profit is expected to drop by 68% to 680.3 billion KRW. By segment, the battery business is expected to return to a deficit of 367.5 billion KRW due to the provision issue, and the petrochemical division's operating profit is also expected to decline by 26% from the second quarter to 975.7 billion KRW due to a drop in major product prices.

Choi Go-woon, a researcher at Korea Investment & Securities, said, "Recall concerns are a challenge that must inevitably be overcome as a leading company, and as proven by the recent JV establishment with Stellantis, it does not undermine the growth momentum of the battery business," adding, "LG Energy Solution plans to expand its production capacity to 430 GWh by 2025, and the target is likely to be continuously raised."