[Edaily Reporter Shin Ha-yeon ] On the 15th, NH INVESTMENT & SECURITIES assessed that market concerns regarding LG Energy Solution(373220)—namely, that its order momentum for energy storage systems (ESS) is limited compared to competitors—are based on a misunderstanding and that the stock actually presents a buying opportunity. The firm forecast that large-scale new ESS orders in the second half of the year, a recovery in the utilization rate of its European plant, and the approval of Tesla’s Full Self-Driving (FSD) system in Europe would serve as factors driving upward revisions to future earnings forecasts. It maintained its “Buy” investment rating and a target price of 480,000 won.

Joo Min-woo, an analyst at NH INVESTMENT & SECURITIES, stated, “Although the stock price has underperformed due to the misconception that ESS order momentum is limited compared to competitors, this actually presents a buying opportunity,” adding, “Since a significant portion of this year’s 90 GWh ESS order target is concentrated in the second half, we expect large-scale orders during the remainder of the year.”

ESS was identified as a key driver of LG Energy Solution’s earnings growth. NH INVESTMENT & SECURITIES projected that this year’s ESS shipments would surge to 34 GWh—a significant increase from last year’s 9 GWh—and expand to 64 GWh next year. ESS revenue is also estimated to rise from 2.733 trillion won last year to 11.218 trillion won this year and 18.16 trillion won next year.

ESS production capacity is also expected to continue expanding. NH INVESTMENT & SECURITIES forecasted that LG Energy Solution’s ESS production capacity would expand from 17 GWh last year to 68 GWh this year and 89 GWh next year. The firm believes that the strategy of converting part of the existing EV battery production lines in the U.S. and Canada for ESS use will support this expansion in production capacity.

The recovery of the European electric vehicle (EV) business was also viewed positively. As sales of facelift models by European customers gain momentum, the utilization rate at the Polish plant is recovering from around 50% in the second quarter to the 60% range in the third quarter.

Researcher Ju explained, “With the full-scale launch of facelifted models by European customers, the utilization rate at the European plant is also recovering to over 60%,” adding, “We expect to reach the break-even point (BEP) in the fourth quarter.”

The approval status of Tesla’s Full Self-Driving (FSD) system in Europe was also identified as a variable that could drive up future earnings estimates. Analysts suggest that if approval is granted during the European Union (EU) Technical Committee on Motor Vehicles (TCMV) vote on Tesla’s FSD—expected on October 6—both Tesla’s sales outlook and small-format battery earnings estimates could be revised upward.

Research Analyst Ju predicted, “If Tesla FSD is approved in the vote by the EU Technical Committee on Motor Vehicles, it will be possible to revise upward both Tesla’s sales forecasts and the earnings outlook for small-format batteries.” Regarding concerns raised by some observers about one-time costs related to cylindrical products, he noted, “These are expected to be negligible.”

Third-quarter earnings are expected to exceed market expectations. NH INVESTMENT & SECURITIES projected LG Energy Solution’s third-quarter revenue at 9.151 trillion won, a 51% increase year-over-year, and operating profit at 336.1 billion won, a 44% decrease year-over-year. This figure is approximately 16% higher than the operating profit consensus of 290.6 billion won.

The firm estimated that the U.S. Advanced Manufacturing Production Credit (AMPC) would amount to 388 billion won, representing a 6% year-over-year increase and a 61% quarter-over-quarter increase. Excluding the AMPC, the firm projected an operating loss of 52.4 billion won and a negative (-) 0.6% operating margin.

The firm cited an EV volume incentive of approximately 300 billion won as the primary reason for the results exceeding market expectations. By segment, revenue is projected to increase by 20% for automotive, 42% for ESS, and 3% for small-sized batteries compared to the previous quarter.

Research analyst Ju explained, “The inclusion of approximately 300 billion won in EV volume compensation is the main reason for the results exceeding the consensus.”

However, the firm expects profitability in the ESS business to remain somewhat weak through the third quarter. This is because, with production bottlenecks for battery packs persisting, the business—excluding AMPC—is expected to remain unprofitable. Nevertheless, the firm forecasts a return to profitability in the fourth quarter as the bottlenecks are resolved.

The depreciation of the won is also a factor weighing on earnings. NH INVESTMENT & SECURITIES estimated that a 10-won decline in the won-dollar exchange rate reduces quarterly operating profit by approximately 10 billion won. As the average exchange rate in the third quarter fell by 82 won compared to the previous quarter, the firm expects this to have a negative impact of about 80 billion won on operating profit.

Nevertheless, the firm raised its operating profit forecast for this year by 17.2%, from 1.111 trillion won to 1.302 trillion won. The operating profit forecast for next year was also raised by 3.4%, from 4.26 trillion won to 4.403 trillion won.

The lead analyst emphasized, “We expect an upward revision to the earnings forecast based on assumptions of new ESS orders, a recovery in European utilization rates, and Tesla’s FSD approval in Europe,” adding, “The misconception that ESS order momentum is limited actually presents an opportunity.”