[Click eStock] LG Energy Solution, Earnings Upgraded 'Target Price Also ↑'

NH Investment & Securities announced on the 22nd that it maintains a buy rating on LG Energy Solution and raises the target price by 6% to 650,000 KRW. This reflects a 5% upward revision in earnings forecasts based on the 2022 KWh unit price being slightly higher than the company's estimates, as revealed in the business report.

Juminwoo, a researcher at NH Investment & Securities, stated, "The stock price of the secondary battery sector rose due to expectations of demand recovery from new car launches and promotions confirmed after the Inflation Reduction Act (IRA), anticipation of multiple new supply contracts and expansion announcements, and the expected impact of AMPC (Advanced Manufacturing Production Credit) on earnings," adding, "After the IRA confirmation, the phase is expected to shift from the realm of expectations to verifying the numbers."

At the recent earnings presentation, the 2023 Capex guidance was presented as a 50% increase compared to the previous year (over 9.3 trillion KRW), significantly exceeding the consensus (6.7 trillion KRW). Considering new expansions mainly in the US (Tesla, Toyota, Hyundai, etc.) and Turkey (Ford), and the AMPC where Ultium involves cell production ($35/KWh) and others involve module production ($45/KWh), it is possible to reflect 1 trillion KRW in 2023, 3.2 trillion KRW in 2024, and 5.7 trillion KRW in 2025. Based on controlling shareholder net income considering JV (GM, Honda) shareholding ratios, contributions are expected to be 618 billion KRW in 2023, 2 trillion KRW in 2024, and 3.7 trillion KRW in 2025. The company’s existing 2025 controlling shareholder net income estimate (3.4 trillion KRW) could be revised upward by 107% when reflecting the AMPC effect. This will be incorporated into earnings estimates upon IRA confirmation.

First-quarter sales are expected to reach 8.6 trillion KRW, and operating profit 519.7 billion KRW, exceeding consensus by 7% and 15%, respectively. Despite the off-season, steady EV demand and favorable exchange rates are expected to drive growth in automotive battery and small battery sales to 5.6 trillion KRW and 2.5 trillion KRW, respectively, continuing growth from the previous quarter.