[Beginner's Guide to Stock Investing] LG Energy Solution's Fateful Day... Will the 'Overhang Shock' Affect the Stock Price?

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[Asia Economy Reporter Kwon Jaehee] LG Energy Solution, which instantly rose to the 2nd largest market capitalization on the KOSPI right after its listing last year, attracting investors' full attention.

On the 27th, LG Energy Solution celebrated its 1st anniversary of listing, and the shares held by the employee stock ownership association became tradable from the 30th (trading is possible from the 28th, but the 28th is a Saturday and the market is closed).

Accordingly, attention is focused on the direction of LG Energy Solution's stock price.

The employee stock ownership shares amount to 7,924,518 shares, which is 3.39% of the total issued shares.

Considering that the actual circulating shares account for 13.15% of the total shares, about 23% of the circulating shares will be released into the market.

However, some voices say that since the growth value is high, the volume released will not be as large as expected.

As LG Energy Solution faces its 'day of destiny' on the 30th, let's take a look back at the record of the past year.

LG Energy Solution's 1 Year Since Listing... How Did It Perform?

LG Energy Solution made new history on the KOSPI right after its listing.

It was truly the hottest topic among investors even before the listing.

During the public offering process, it raised a record-breaking subscription deposit of 114 trillion KRW, and immediately ranked 2nd in market capitalization on the KOSPI upon listing.

It is also the first stock in the history of domestic IPOs to surpass 100 trillion KRW in subscription deposits.

LG Energy Solution entered the Korean stock market on January 27 last year with a public offering price of 300,000 KRW, and on the first day of listing, it soared to a high of 598,000 KRW, achieving a 'double jump' (price doubling plus a premium).

Afterwards, in July last year, it recorded a low of 352,000 KRW.

Amid deteriorating investor sentiment due to the reconsideration of a 1.7 trillion KRW investment in a factory in Arizona, USA, and the anticipation of poor Q2 earnings, it became a target of short sellers, causing the stock price to plunge at one point.

However, it has maintained a steady stock price trend since then, reaching an intraday high of 629,000 KRW in November last year, and currently stands at 506,000 KRW (closing price on the 27th).

This is about a 33% increase compared to the public offering price.

'Overhang' Issue... Why?

At first glance, LG Energy Solution's stock price seems to be gradually recovering and approaching its highest price.

So why has the overhang (potential sell volume) issue suddenly become a problem?

It is because the shares allocated to the employee stock ownership association became tradable on the market as the 1st anniversary of listing arrived.

This accounts for 3.39% of the total shares, amounting to over 3 trillion KRW in volume.

In the Korean stock market, companies allocate about 20% of the total shares to the employee stock ownership association at the time of listing, granting employees priority subscription rights for the public offering shares.

This is called the 'Employee Stock Ownership System.'

It is a system where employees establish an employee stock ownership association to acquire and hold company shares.

The shares received this way cannot be sold for one year due to employee lock-up restrictions.

At the time of listing, LG Energy Solution employees were allocated a total of 8,154,518 shares at the public offering price of 300,000 KRW.

Currently, due to some resignations, the number stands at 7,924,939 shares.

Depending on rank and years of service, employees could purchase employee stock ownership shares ranging from a minimum of 100 million KRW to a maximum of 400 million KRW.

Considering this, shareholders who hold up to the 400 million KRW limit could realize evaluation gains exceeding 200 million KRW.

Since the stock price has risen more than 30% compared to the public offering price, there are expectations that sell orders for profit-taking will flood the market.

What Is the Outlook for LG Energy Solution's Stock Price?

Despite the overhang issue, securities firms maintain a 'buy' rating on LG Energy Solution.

As the electric vehicle market is structurally growing, the long-term stock price outlook remains positive.

Since the beginning of this year, all 15 securities firms that have issued stock reports on LG Energy Solution have given a 'buy' rating, with target prices ranging from a minimum of 520,000 KRW to a maximum of 718,000 KRW.

Researcher Anna Lee of Yuanta Securities said, "This year, with the full-scale mass production in the U.S., LG Energy Solution's external growth will be significant," adding, "The stock price will rebound strongly after the employee stock ownership overhang issue is resolved on the 30th."

Researcher Changhyun Jeon of Daishin Securities also analyzed, "Although the stock price was sluggish due to concerns over deteriorating earnings from the recent slowdown in electric vehicle demand centered on Tesla and the overhang issue, the Q4 earnings announcement on the 27th will reduce uncertainty about this year's performance, and a stock price rebound is expected after the employee stock ownership overhang issue phase on the 30th."

This article is part of the [Beginner's Guide to Stock Investing] published weekly by Asia Economy. We explain stock-related financial news and complex economic stories in an easy and friendly way so that stock beginners can understand. Click subscribe to receive articles for free.

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