[Click eStock] LG Chem Confirms Profitability Impact from Semiconductor Chip Shortage... Target Price Down

[Asia Economy Reporter Ji Yeon-jin] Hana Financial Investment announced on the 26th that it has slightly lowered its profit estimates for LG Chem next year and adjusted the target stock price down from 1.15 million KRW to 1.05 million KRW.

Yoon Jae-sung, a researcher at Hana Financial Investment, said, "Since the semiconductor chip shortage issue from the fourth quarter of this year could affect battery shipment volume and profitability, it is necessary to monitor this closely," adding, "The future trigger for LG Chem's stock price will be the profitability improvement of LG Energy Solution."

LG Chem's operating profit for the third quarter of this year was 726.6 billion KRW, a 20% decrease compared to the same period last year, falling 30% short of market expectations. This is attributed to a provision of approximately 620 billion KRW related to the GM Bolt EV recall, which is considered to have already been recognized. The petrochemical operating profit showed strong performance at about 1.1 trillion KRW. Excluding one-time items, LGES's sales slightly decreased compared to the previous quarter, but operating profit was 251 billion KRW (OPM 6.2%), similar to the previous quarter.

Operating profit for the fourth quarter of this year is expected to increase by 35% from the previous quarter to 979.4 billion KRW, representing a 723% increase compared to one year ago. Petrochemicals are estimated to have an operating profit of 770 billion KRW, reflecting opportunity losses of 200 billion KRW due to regular maintenance of Daesan NCC and downstream facilities, as well as the use of high-priced naphtha. However, the operating margin is expected to decrease to 4.5% from the previous quarter, as shipment restrictions caused by semiconductor chip shortages at automotive manufacturers are anticipated to limit the increase in battery operating rates.

Researcher Yoon said, "It is positive that the cause of the GM Bolt EV fire was clearly identified as separator displacement and anode tab disconnection in the third-quarter earnings announcement," explaining, "The company recently stated that it will reduce the possibility of repeated recalls through enhanced safety processes for newly produced products, full automatic inspections, and improved BMS diagnostic software."