LG Energy Solution's Rebound Likely to Be Short-Term Rather Than Sustained [Click e-Stock]

ESS remains strong
but EV demand continues to lag

Although LG Energy Solution's energy storage system (ESS) business is experiencing high growth, it is considered insufficient to offset the sluggish demand for electric vehicles (EVs). Analysts predict that, starting in October this year, as the downturn in the US EV market becomes more pronounced, the momentum for a stock price increase will weaken.

On the 28th, NH Investment & Securities maintained its 'Buy' rating for LG Energy Solution and raised its target price by 12% to 450,000 won, but added this caveat. The previous trading day's closing price was 363,500 won.

First, the ESS segment is expected to perform well. The production capacity for ESS is projected to expand from 27 gigawatt-hours (GWh) this year to over 40 GWh next year. In the North American market alone, it is expected to increase from around 17 GWh to over 30 GWh. As of the second quarter of this year, the company had already secured an order backlog of 50 GWh, so production capacity, rather than demand, is considered the key variable for ESS performance.

Accordingly, ESS sales are estimated at 2.8 trillion won this year and 5.9 trillion won next year. This represents growth of 50% and 111%, respectively, compared to the same period last year. The sales proportion is also expected to reach 13% and 24%, respectively. Including the US Advanced Manufacturing Production Credit (AMPC), the operating profit proportion is projected to reach 13% and 37%, respectively.

However, while this growth is encouraging, it is assessed as insufficient in terms of scale to offset the sluggish EV demand. Joo Minwoo, an analyst at NH Investment & Securities, explained, "Since the downturn in the US EV market is expected to begin in earnest from October this year, the momentum for a stock price increase will gradually weaken after a short-term rebound."

For the third quarter of this year, sales are estimated at 5.568 trillion won and operating profit at 503.2 billion won. Compared to the same period last year, sales are expected to decrease by 19.0%, but operating profit is expected to increase by 12.2%. Excluding the AMPC, operating profit is estimated at 116.9 billion won. This is because automotive batteries are generally expected to perform poorly.

Joo added, "Sales to GM are expected to decrease by 25% quarter-on-quarter due to inventory adjustments, and sales to European clients such as Volkswagen and Renault are likely to slow during a period of conservative inventory management and production line conversion (LFP/high-voltage mid-nickel). In contrast to disappointing automotive sales, demand for small batteries and ESS is expected to remain robust, thanks to the effect of new Tesla models and the ramp-up of production capacity at the Michigan LFP plant."