[Click eStock] "LG Chem, Uncertainty to Persist for a While... Target Price Down"

Target Price Lowered by 30% Compared to Previous Estimate

Shinhan Investment Corp. downgraded the target price for LG Chem from 500,000 KRW to 350,000 KRW on the 4th, citing ongoing uncertainties for the time being. The investment rating was maintained at 'Buy.'

Lee Jin-myung, a researcher at Shinhan Investment Corp., stated, "The target price was lowered by 30% compared to the previous estimate, reflecting changes in earnings forecasts and a decrease in the value of the subsidiary (LG Energy Solution) shares," adding, "Although uncertainty remains regarding the recovery of fundamentals, the 12-month forward price-to-book ratio (PBR) at 0.6 times is at an all-time low, limiting the possibility of further adjustments."

LG Chem's fourth-quarter results last year fell short of market expectations. Lee said, "In the fourth quarter of last year, LG Chem posted an operating loss of 252.2 billion KRW, turning to a deficit compared to the same period last year and missing the consensus operating loss estimate of 72.4 billion KRW. The chemical division recorded an operating loss of 99 billion KRW, widening the deficit compared to the previous quarter; advanced materials saw operating profit drop by 68% to 48 billion KRW; and the cathode materials segment turned to an operating loss of 700 million KRW."

Although a return to profitability is expected in the first quarter of this year, the pace of improvement is anticipated to be slow. Lee forecasted, "The first quarter is expected to return to profit due to one-time extinguishment effects; however, significant recovery in the core business and LG Energy Solution is limited, so the improvement pace will be slow."

Improvement is expected in the second half of the year, but uncertainties are likely to persist for the time being. Lee explained, "Slow recovery in Chinese demand, policy risks stemming from Trump, and a slowdown in electric vehicle demand are expanding uncertainties across all business divisions. Nevertheless, the chemical sector is expected to see a gradual recovery due to demand improvement from China's stimulus measures amid stabilized lower oil prices and expansion of high value-added products." He added, "The secondary battery business is expected to show a pattern of lower performance in the first half and higher in the second half, driven by shipment increases from EV demand recovery in North America and Europe after inventory adjustments and stabilization of metal prices."