[Click eStock] "LG Chem Achieves Record Performance... Time to Focus on Cathode Material Business Internalization"

Kiwoom Securities Report
Target Price Up 45%... Set at 900,000 Won

[Asia Economy Reporter Minji Lee] Kiwoom Securities stated on the 13th that attention should be paid to the improvement of the internalization ratio through gradual expansion of cathode material production capacity at LG Chem. Considering the chemical expansion and performance improvement in the battery sector, they maintained a buy rating and raised the target price by 45% from the previous level to 900,000 KRW.

In the third quarter, LG Chem recorded an operating profit of 901.2 billion KRW, an increase of 158.7% compared to the previous quarter. This figure exceeded the heightened market expectations (711.7 billion KRW) by 26.8%.

[Image source=Yonhap News]

The sharp rise in margins in the petrochemical sector was effective, and the petrochemical division's operating profit is estimated to have surpassed the quarterly records of Q1 2011 (736 billion KRW) and Q3 2017 (731 billion KRW). Researcher Dongwook Lee of Kiwoom Securities said, “Margins of globally scaled products such as Acrylonitrile Butadiene Styrene (ABS) and Polyvinyl Chloride (PVC) have expanded rapidly,” adding, “SBT, BR, NBR, and Nitrile Latex (NBL) also saw improvements in shipment volume and spreads due to the turnaround in the downstream industries.”

The battery division's operating profit is estimated to have slightly decreased compared to the previous quarter. Although cylindrical battery performance improved due to expanded shipments to Tesla, the medium-to-large batteries appear to have experienced a profit decline compared to the previous quarter due to a decrease in ESS orders and some one-time expenses. However, sales revenue reached an all-time high since the company's founding due to increased sales volume.

Going forward, attention should be focused on the expansion of cathode material production capacity. In September this year, the plant jointly operated with Zhejiang Huayou Cobalt Co., Ltd. in China doubled the cathode material production capacity compared to before. According to related industries, with expansions in Cheongju, Gumi, and China, cathode material production capacity is estimated to exceed 200,000 tons by 2025. Researcher Dongwook Lee explained, “Although cathode material performance will not be reflected in the consolidated financial statements due to restrictions on external sales and elimination of internal transactions, it can be utilized for cathode material procurement and rationalization of purchase prices.”

Next year, the performance impact of the Yeosu cracker expansion is expected to be reflected. The Yeosu cracker production capacity will increase to 2.1 million tons, achieving a world-class scale for a single cracker. Besides the volume increase effect, improvement in the basic oil payout rate, which had lagged compared to downstream (the process of producing synthetic resins from petrochemical raw materials), is anticipated, along with additional effects such as energy intensity reduction and diversification of raw materials through increased LPG input ratio.

This content was produced with the assistance of AI translation services.