Q4 Earnings Outlook for the Three Major K-Battery Companies

On the 21st, at the battery industry exhibition 'InterBattery 2020' held at COEX in Gangnam-gu, Seoul, SK Innovation CEO Ji Dong-seop (first from the right) is visiting and touring the exhibition hall. Marking its 8th year, InterBattery features the core technologies of 'K-Battery,' including batteries for automobiles, smartphones, energy storage systems (ESS), and key materials. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Park So-yeon] The performance of the three major domestic battery companies?LG Energy Solution, Samsung SDI, and SK Innovation?is expected to grow simultaneously in the fourth quarter of last year, reaching an all-time high.

Despite uncertainties such as the novel coronavirus pandemic, Tesla's push for battery internalization, and Apple's challenge in the electric vehicle market, K-battery companies are gaining momentum from the growth of the electric vehicle market.

According to the industry on the 3rd, LG Energy Solution, recently spun off from LG Chem, Samsung SDI, and SK Innovation will simultaneously announce their annual results, including the fourth quarter of 2020, at the end of this month.

LG Energy Solution is expected to report its first annual profit, Samsung SDI its first quarterly profit, and the latecomer SK Innovation is also expected to confirm steady growth, according to the industry.

LG Chem announced its preliminary results for the first time in the third quarter of last year ahead of the spin-off of LG Energy Solution. It is known that the fourth quarter preliminary results will not be separately released but will be announced together with LG Energy Solution and other business divisions' results.

According to the securities industry, LG Chem's operating profit for the fourth quarter is estimated to be in the 700 billion KRW range, with LG Energy Solution's operating profit estimated at around 200 billion KRW. The battery business has posted consecutive profits in the second and third quarters, signaling an annual profit.

Looking at LG Chem as a whole, overall performance is somewhat sluggish compared to the previous quarter due to the Yeosu naphtha cracking center (NCC) fire and provisions for energy storage system (ESS) fire damages, but LG Energy Solution is expected to continue its growth trend.

Hyundai Motor Securities predicts LG Energy Solution's fourth-quarter operating profit at 278 billion KRW and sales at 4.2 trillion KRW, stating, "Although there is a possibility of one-time costs related to the US ESS, the impact will not be significant as ESS accounts for a small portion."

LG Chem's battery business turned profitable from the second quarter of last year and recorded its highest operating profit in the third quarter. The cumulative operating profit for the first three quarters was 272.5 billion KRW, and including the fourth quarter, the annual profit is expected to exceed 400 billion KRW.

Among the three battery companies, Samsung SDI is identified as the most outstanding company in this fourth quarter. The securities industry estimates Samsung SDI's fourth-quarter operating profit to be in the low 300 billion KRW range and sales in the mid-3.5 trillion KRW range.

The fourth-quarter operating profit is expected to surge by more than 1,400% compared to the same period last year, with Samsung SDI projected to record its highest-ever performance.

In particular, it is forecasted that the medium-to-large battery segment, including electric vehicle batteries, will turn profitable for the first time in the fourth quarter.

Eugene Investment & Securities expects Samsung SDI's medium-to-large battery segment's fourth-quarter operating profit to be 72 billion KRW and the small battery segment to be 128.3 billion KRW, stating, "The profit turnaround in batteries will accelerate profit growth."

Samsung SDI announced during its third-quarter earnings release that the breakeven point for electric vehicle batteries was near and aims to achieve profitability solely from electric vehicle batteries in the new year.

SK Innovation is still expected to find it difficult to turn a profit but is anticipated to steadily reduce its operating losses. The fourth-quarter operating loss is estimated to be around 90 billion KRW.

In the third quarter, SK Innovation's battery business sales increased 2.5 times year-on-year to 486 billion KRW, and operating losses were reduced to 98.9 billion KRW.

SK Innovation has set a goal to achieve mid-5 trillion KRW sales and realize profits in the battery business in 2022.

The three battery companies are expected to continue high growth this year. This is thanks to increased global electric vehicle sales as governments worldwide have strengthened electric vehicle support policies to stimulate the economy after the COVID-19 pandemic.

All three companies are aggressively investing in capacity expansion. LG Energy Solution has set a goal to achieve 30 trillion KRW in sales in 2024, and the industry expects it to further strengthen its dominance in the global market this year.

Samsung SDI is expected to use the last quarter as a major turning point and achieve a leap in growth with annual operating profits reaching the 1 trillion KRW level this year.

SK Innovation plans to establish a solid growth momentum in the secondary battery business this year not only through electric vehicle batteries but also by listing its separator subsidiary, SKIET.

With the US ITC ruling on the battery trade secret infringement lawsuit between LG Energy Solution and SK Innovation scheduled for February, the industry expects that a settlement between the two companies could resolve long-standing uncertainties.

Furthermore, there is a forecast that automakers' battery internalization could actually be a boon for the three Korean battery companies. Even if automakers start producing batteries themselves, it is highly uncertain whether they can secure cost competitiveness compared to existing battery companies, and mass production of competitive batteries is not easy, suggesting that they will expand business with battery companies.

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