[Click eStock] "LG EnSol, Short-term Profitability Decline... Mid-to-Long-term Growth Momentum Remains Valid"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] Kiwoom Securities maintained its 'Buy' rating and target price of 640,000 KRW for LG Energy Solution on the 10th.

LG Energy Solution's preliminary Q4 results last year showed sales of 8.5 trillion KRW and operating profit of 237.4 billion KRW, significantly below market consensus (operating profit consensus of 453.4 billion KRW).

Researcher Kwon Junsu of Kiwoom Securities analyzed, "Sales volume increased significantly due to the operation effect of the US Ultium Cells JV (joint venture) Plant 1 and strong demand for EV pouch batteries in Europe, but profitability deteriorated due to price declines caused by falling metal prices and a decrease in the KRW-USD exchange rate."

Additionally, one-time costs such as year-end bonuses and energy storage system (ESS) provisions amounting to about 300 billion KRW were reflected, causing Q4 profitability to fall far short of expectations. Demand for small batteries for IT and power tools appears to have contracted, but sales volume of cylindrical batteries for Tesla is estimated to have remained similar to the previous quarter, and demand for EV pouch batteries is still considered robust.

Q1 results this year are expected to record sales of 8.2 trillion KRW and operating profit of 432.3 billion KRW, representing increases of 89% and 67% respectively compared to the same period last year.

Researcher Kwon said, "Considering that Q1 is the seasonal off-season for electric vehicles, a decrease in sales volume is expected, and shipments of batteries for IT and power tools within small batteries are also likely to decline," adding, "Taking into account the effect of the KRW-USD exchange rate decline, sales are expected to slightly decrease compared to the previous quarter."

However, profitability is expected to improve with the removal of one-time costs, with operating profit margin forecasted to increase by 2.5 percentage points compared to the previous quarter.

Researcher Kwon stated, "Although recent Tesla price cuts and concerns about slowing electric vehicle demand have increased performance uncertainty, LG Energy Solution did not experience a reduction in order volume or year-end inventory adjustments that the market feared in Q4," adding, "The company has major automaker clients such as GM, Stellantis, Volkswagen, Volvo, and Hyundai Kia, and especially with the competitor CATL from China facing restrictions entering the North American market, LG Energy Solution's battery market share in North America is expected to rapidly expand."