[Click eStock] "LG Chem, Advanced Materials Fair Value Comparable to LG Energy Solution"

Hi Investment & Securities maintained its investment opinion of 'Buy' and target price of 930,000 KRW for LG Chem on the 28th.

LG Chem's operating profit for the first quarter is expected to be 582.8 billion KRW, slightly below the consensus of 605.5 billion KRW. By segment, the petrochemical division is expected to reduce its operating loss to -104.3 billion KRW from -166 billion KRW in the previous quarter. This is due to inventory demand arising from expectations of demand recovery following China's reopening, which generally pushed product prices up, while the lagging spread improved due to low-cost naphtha input that plummeted since November. Although concerns such as the Silicon Valley Bank (SVB) bankruptcy and Credit Suisse (CS) crisis negatively affected regional sentiment, causing some hesitation in purchasing demand, encouraging macro indicators from China still support expectations for demand recovery from the second quarter onward. Therefore, further reduction in losses in the second quarter and a return to profitability in the second half of the year are anticipated.

The advanced materials segment is expected to see increased sales and operating profit as shipments, which had decreased due to inventory adjustments by major customers in the previous quarter, normalize. The advanced materials division is projected to record an operating profit of 153.7 billion KRW, a 754% increase from the previous quarter, driven by approximately a 50% increase in shipments due to normalization of customer inventory adjustments. The recent sharp decline in metal prices appears to have had minimal impact on selling prices.

Researcher Jeon Yoo-jin of Hi Investment & Securities analyzed, "Now, the value of advanced materials in LG Chem's fair value is comparable to the equity value of LG Energy Solution," adding, "Although the lagging effect enjoyed from last year's rising metal prices has disappeared, making a downward stabilization of advanced materials profitability inevitable this year compared to the previous year, it is necessary to emphasize the external growth effect from cathode material capacity expansion."

Researcher Jeon also added, "Besides cathode material growth, it is encouraging that the DNA of the battery materials business is being established," and "Considering a stable financial structure and scenarios utilizing part of LG Energy Solution's equity, further expansion of the value chain is fully possible."