[Edaily Reporter kyoungeun kim ] Meritz Securities stated on the 31st that while LG Energy Solution(373220)successfully returned to profitability in the second quarter, its results fell short of market expectations. The firm maintained its “Buy” investment rating but lowered its target price to 440,000 won from the previous 470,000 won.
Meritz Securities analyst Noh Woo-ho stated, “We have lowered our annual earnings estimates due to lower-than-expected shipments of electric vehicles (EVs) powered by Pouch batteries in North America and the cost burden in the short-term energy storage system (ESS) segment,” adding, “We set the fair value at 440,000 won by applying a price-to-earnings ratio of 13 to next year’s operating profit estimate.” This represents an upside potential of 37.5% compared to the previous day’s closing price (320,000 won).
However, Analyst Noh added, “Considering the company’s market dominance among non-Chinese battery manufacturers and the growth potential of its ESS division, the recent one-month stock price correction can be viewed as a buying opportunity.”
LG Energy Solution shared its business strategies for the electric vehicle (EV) and energy storage system (ESS) sectors during an earnings briefing held the previous day. In this regard, Analyst Noh explained, “In the EV sector, the company is securing a broader customer base in Europe with mid-to-low-priced products such as lithium iron phosphate (LFP) and high-voltage mid-nickel batteries, while in the U.S., shipments to new customers are increasing due to the base effect from production volume and the strategy focused on 2170/46 series cylindrical batteries.”
Regarding the ESS sector, he stated, “While short-term costs are unavoidable, we are expanding production volume to 50 gigawatt-hours (GWh) by year-end and strengthening our capabilities in energy management and power solutions, including securing orders for artificial intelligence data centers (AI DCs).” He added that the company is preparing to expand its product lineup to include next-generation technologies such as sodium-ion and all-solid-state batteries.
Second-quarter revenue reached 7.5602 trillion won, a 24.8% increase year-over-year, but operating profit fell 77.0% year-over-year to 113.3 billion won. However, the company successfully returned to profitability compared to the previous quarter (-207.8 billion won). This figure is 39.8% below the market consensus of 188.3 billion won.
Regarding third-quarter earnings, Meritz Securities estimated revenue of 7.6741 trillion won and operating profit of 411.0 billion won (including 254.5 billion won in the Advanced Manufacturing Production Credit (AMPC)).
“The improvement in earnings is driven by the lag effect of selling prices and an improved product mix centered on cylindrical batteries and ESS,” the analyst stated, adding, “We estimate cylindrical battery revenue at 2.4 trillion won and ESS revenue at 1.8 trillion won, with the contribution of ESS revenue expected to increase to 24%.” He added, “Although the restart of Production Lines 1 and 2 at the joint venture (JV) with General Motors (GM) in the U.S. during the second half of the year will be limited to a minimal scale, we can expect a gradual improvement.”