No Further Downside in Volume... LG Chem Bottoming Out [Click e-Stock]

Operating Loss of 274.3 Billion Won Expected in Q4 Last Year
Both Operating Rates and Prices Have Hit 'Bottom'

Both the petrochemical and secondary battery sectors are experiencing challenging business conditions. The operating rate for cathode materials has already declined sufficiently, and the possibility of further price drops is considered limited. This is the background behind the analysis that LG Chem is bottoming out.

On January 13, NH Investment & Securities lowered its target price for LG Chem by 21.2% to 410,000 won, citing these factors. The previous day's closing price was 321,500 won. The investment opinion of "Buy" was maintained. The downward revision reflects a reduced earnings outlook, taking into account the lower operating rate at LG Energy Solution's U.S. plant and costs related to line conversion. The operating value of LG Energy Solution, which is used to calculate LG Chem's corporate value, was also reduced from 54 trillion won to 43 trillion won.

The company is expected to report fourth-quarter results below market consensus. Sales are estimated at 11.108 trillion won, with an operating loss of 274.3 billion won, turning to a loss compared to the previous quarter. The petrochemical division alone is projected to record an operating loss of 108.9 billion won. Sales margins deteriorated compared to the previous quarter, and opportunity losses also occurred due to scheduled maintenance. The advanced materials division is also expected to post an operating loss of 10.6 billion won due to the seasonal off-peak period.

The performance of the advanced materials business unit in the second half of last year was particularly weak. This was due to a slowdown in electric vehicle (EV) demand, which caused cathode material sales volume to shrink by 65% compared to the first half, to around 11,000 tons. The current operating rate of LG Chem's cathode material facilities is estimated to be only about 15%. It is assessed that there is little room for further decline in volume. Recently, lithium prices have also rebounded, so the possibility of additional price drops is considered limited.

Choi Younggwang, a researcher at NH Investment & Securities, predicted, "This year, shipments of cathode materials to new customers such as Toyota and Panasonic will increase, leading to higher sales volumes and operating rates."