[Click eStock] "LG Energy Solution, US Electric Vehicle Market Growth... Target Price 600,000 Won"

Korea Investment & Securities Report

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on LG Energy Solution on the 26th and set a target price of 600,000 KRW. Excluding CATL, which operates in the Chinese domestic market, LG Energy Solution is considered the true global No. 1 secondary battery manufacturer, expected to achieve double-digit average annual growth rates by 2025 due to the expansion of the U.S. electric vehicle market.

The electric vehicle and secondary battery markets are still in the early stages of the industry. The global electric vehicle penetration rate was only 7.5% as of cumulative data in November this year. Demand for secondary batteries is also expected to rapidly increase from 159 GWh in 2020 to 3,553 GWh by 2030. The electric vehicle industry ecosystem is mostly formed through long-term supply contracts. Through the company’s marketing strategy and active establishment of joint ventures (JVs), it has secured an order backlog worth approximately 260 trillion KRW (13.1 times this year’s estimated sales). Researcher Chulhee Cho of Korea Investment & Securities explained, “The establishment of JVs is a strategy that satisfies both secondary battery manufacturers and customers. From the customer’s perspective, internalizing secondary batteries is realistically difficult, so they can secure stable supply through JVs, while secondary battery companies can reduce initial investment burdens and secure promising large customers as business partners.”

The U.S. is a laggard in electric vehicles with a penetration rate of 4.1% as of cumulative data in November this year (global average 7.5%). However, since the Biden administration took office, active support for eco-friendly policies has been implemented, making it the fastest-growing market in the future. The company is currently discussing JV establishment with GM, Stellantis, and Honda, which rank 2nd and 4th in U.S. sales, and is expected to be the biggest beneficiary of the U.S. electric vehicle market.

Another investment point is that LG Energy Solution has the most diverse product lineup among global secondary battery companies. Tesla is the main customer for small batteries, and development of next-generation size batteries is underway. For medium and large batteries, research is being conducted not only on pouch cells but also on prismatic cells. High-end products are addressed with ternary batteries, and the growing mass-market segment will be addressed through the development of LFP batteries.

The company’s stable financial structure through this IPO is also positive. It raised funds amounting to 10 trillion KRW through the IPO, and plans to invest a total of 21 trillion KRW in facilities from 2022 to 2025. The company plans to manage funds stably by utilizing the amount raised through the IPO and an EBITDA of 16.9 trillion KRW during the same period.

The company’s average sales growth rate (CAGR) over the next four years is expected to reach 27.2%. Large-scale facilities for GM and Stellantis in North America will be sequentially put into operation starting in 2023. Expansion is also underway in European regions such as Poland. Operating profit margin is expected to rise steadily along with sales growth. The company’s operating profit margin is estimated to increase from 5% in 2022 to 6.7% in 2025.