[Click eStock] "LG Energy Solution, Rebound Expected from 2Q to 2023 After July Lows"

[Asia Economy Reporter Kwon Jae-hee] Hyundai Motor Securities maintained a 'Buy' rating and a target price of 640,000 KRW for LG Energy Solution on the 5th. Although the second quarter is expected to record disappointing results below consensus, the second half performance is anticipated to improve compared to the first half.

LG Energy Solution's second-quarter earnings are projected to fall short of consensus, with sales of 4.8 trillion KRW and operating profit of 208.6 billion KRW. The poor performance is attributed to the slower-than-expected normalization of Tesla's Shanghai plant operations, which, despite an increase in cylindrical battery shipments compared to the previous quarter, somewhat eased the surprise factors seen in the first quarter. Additionally, although overall material prices rose in the second quarter, the pass-through to battery prices is expected to occur over the second and third quarters, partially affecting the results.

However, Hyundai Motor Securities drew a clear line regarding the issue of reconsidering the construction of LG Energy Solution's Arizona plant, stating that it should not be interpreted as a negative factor for the company's fundamentals or the overall secondary battery business.

Kang Dong-jin, a researcher at Hyundai Motor Securities, said, "The Arizona plant was originally planned to supply 2170 batteries to startups such as Lucid and Nikola, and reconsidering this is deemed timely. Considering that LG Energy Solution's 4680 battery line is scheduled to start operations by the end of next year, the reconsideration could also include the option to switch to Tesla's 4680 batteries. There is no need to overinterpret this as a risk to LG Energy Solution's overall business."

From the third quarter, LG Energy Solution is expected to benefit from strong electric vehicle sales in the U.S. due to rising fuel prices as it begins operations at the Ultium Cells Ohio plant. Furthermore, profitability is expected to improve as most of the raw material price increases are passed on to battery prices. Additionally, Tesla recently upgraded its Shanghai plant, increasing its pre-COVID maximum monthly production capacity from 68,000 units to 88,000 units, which is expected to expand the momentum for strong demand for cylindrical batteries in the second half.

Researcher Kang said, "The stock price fell due to downward revisions of short-term earnings forecasts and concerns over supply and demand related to the six-month lock-up expiration, but expectations for performance improvement in the second half and next year remain intact. A stock price rebound is expected after the July bottom."