[Edaily Reporter Kim Hyung-il ] Meritz Securities raised its third-quarter earnings estimates for LGCHEM,LTD(051910)but maintained its “Hold” investment rating. While earnings are expected to improve due to one-time gains from its subsidiary LG Energy Solution (LGES), the firm believes it is difficult to confirm a substantive recovery in the cathode material business, and there is a lack of catalysts to drive fundamental changes in the company’s business structure. The target price was lowered from 370,000 won to 310,000 won.

On the 15th, Noh Woo-ho, an analyst at Meritz Securities, estimated LGCHEM,LTD’s third-quarter revenue at 13.8 trillion won and operating profit at 740.9 billion won. The significant upward revision from recent market expectations reflects strong earnings driven by one-time factors at LGES.

By business segment, the Basic Materials division is expected to post an operating loss of 166.3 billion won due to negative lag effects resulting from rising international oil prices. The lag effect refers to the impact on profits caused by a time lag between changes in raw material prices and their reflection in product prices.

In the Advanced Materials segment, operating profit is estimated at 81.6 billion won, driven by the performance of information technology (IT) materials and engineering plastics (EP). The cathode materials segment is expected to make a limited contribution to earnings, with sales of 154.4 billion won and an operating profit of 2.5 billion won. The combined operating profit estimate for the Palm Hannong and Life Sciences segments, which have entered their seasonal peak demand period, is 129.6 billion won.

The issue is that LGES’s business expansion is not translating into improved earnings for LGCHEM,LTD’s cathode materials division. LGES is accelerating the conversion of its production lines for energy storage systems (ESS), and shipments of cylindrical batteries to smart car manufacturers and North American and European automakers continue to rise.

In contrast, within LGES’s lithium iron phosphate (LFP)-based ESS supply chain, the pool of cathode material suppliers has narrowed to one existing Chinese firm and two domestic competitors. For cylindrical batteries as well, existing competitors maintain a monopoly on cathode material supply. Analysts note that LGCHEM,LTD is failing to keep pace with the expansion of demand in LGES’s Chonbang markets.

Assessments suggest it is still too early to expect a significant improvement in the cathode material business’s earnings outlook. Estimated cathode material sales for 2026 and 2027 are 562 billion won and 773.1 billion won, respectively. While operating income is expected to shift from a deficit of 18.6 billion won in 2026 to a surplus of 10.5 billion won in 2027, the extent of the improvement is viewed as limited.

If LGES’s business direction and LGCHEM,LTD’s cathode material business fail to align for the time being, there is limited room for the discount rate applied to the value of the held stake to narrow. Meritz Securities raised its fair value estimate for LGES but applied a 63% net asset value (NAV) discount rate to the value of that stake, setting LGCHEM,LTD’s fair share price at 310,000 won.

Analyst Noh assessed, “There is still a lack of catalysts to drive fundamental changes in the company, such as earnings improvement in the cathode material business and strengthened business synergies with its subsidiaries.”