[Edaily Reporter kyoungeun kim ] LG Energy Solution(373220), Q3 'Earnings Surprise'… Target Price Raised to 550,000 Won – Meritz
Q3 Operating Profit of 756 billion won, 4 Times the Consensus… ESS Sales Exceed 3 Trillion Won
"ESS Smiles, BEV Cries… Third ESS Central Contract Market to Provide Year-End Momentum," Fair Value Set at 510,000 Won

[Edaily Reporter kyoungeun kim ] LG Energy Solution(373220)posted third-quarter earnings that significantly exceeded market expectations, driven by strong performance in the energy storage system (ESS) sector. Analysts suggest that short-term trading buying in the battery sector will remain valid around the time of next month’s U.S. midterm elections. However, they note that it is still difficult to agree with expectations of a rebound in the electric vehicle battery sector.

In a report released on the 15th, Noh Woo-ho, an analyst at Meritz Securities, maintained a “Buy” rating on LG Energy Solution, raised earnings estimates, and increased the target price from 440,000 won to 510,000 won. The stock closed at 422,000 won the previous day.

LG Energy Solution’s preliminary third-quarter revenue reached 9.6434 trillion won, a 59.0% increase year-over-year. Operating profit rose 25.7% to 756 billion won, more than four times the market consensus (188.3 billion won). Meritz Securities estimated that ESS revenue accounted for 3.1102 trillion won of this total. This represents a significant increase from the 1 trillion to 2 trillion won range recorded per quarter in the first half of the year. The firm also estimated that 416.9 billion won from the U.S. Advanced Manufacturing Production Credit (AMPC) was reflected in the results.

Analyst Noh stated, “Following the announcement of preliminary third-quarter earnings, a ‘Trading Long’ recommendation for the battery sector remains valid around the U.S. midterm elections on November 3,” adding, “Regardless of whether a specific party gains an advantage in the midterm elections, the ‘Ex-China’ ESS supply chain premium in the U.S. remains valid.” He further predicted, “Issues that have long plagued the ESS business—such as yield per unit and pack bottlenecks—will also be gradually resolved.”

However, he drew a line regarding a rebound in battery electric vehicles (BEVs). Analyst Noh stated, “I do not agree with the market’s expectations of a BEV rebound,” diagnosing that “as France and Germany within the European Union (EU) seek to delay the phase-out of internal combustion engines and the U.S. has decided to abolish fuel economy regulations, sluggish BEV battery shipments to traditional automaker clients will persist.” He added, “The timing of policy changes regarding BEVs in the U.S. is expected to be delayed until the November 2028 presidential election.”

He cited the South Korean government’s selection of operators for the third ESS Central Contract Market as a key source of momentum toward the end of the year. Researcher Noh said, “While the majority of market participants are focusing on the visibility of securing the remaining 60 GWh in U.S. ESS orders by year-end, the key to order guidance lies not in the timing but in the direction,” adding, “The year-end momentum we are focusing on is the selection of operators for the third ESS Central Contract Market.” The scale of the third round has increased to 1.13 GW, matching the combined size of the first and second rounds (1.13 GW). He analyzed, “According to media reports, LG Energy Solution has declared the localization of its entire value chain—including four key materials—to secure this contract,” adding, “If the contract is finalized, it will create positive momentum for the company and the related value chain.”

Meritz Securities raised its operating profit estimate for this year from 876.1 billion won to 1.2095 trillion won—a 38.1% increase—and for next year from 2.777 trillion won to 4.3492 trillion won—a 56.6% increase. Analyst Noh emphasized, “Demand for power infrastructure is expected to remain steady due to geopolitical risks and the impact of the energy transition,” adding, “While the domestic secondary battery industry is projected to follow an ‘L-shaped’ cycle, LG Energy Solution could outperform the industry’s average growth rate through increased shipments of cylindrical batteries for Company T’s smart cars and its transformation into an ESS manufacturer.”