[Click eStock] “LG Chem, Currently in an Absolutely Undervalued State”

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a buy rating on LG Chem on the 18th and mentioned that the current stock price level is in an absolutely undervalued phase. However, the target price was lowered by 15% from the previous level to 660,000 KRW, reflecting a decrease in sales in the battery division.

LG Chem's expected sales for the first quarter are 10.8 trillion KRW, with an operating profit of 784.2 billion KRW. The operating profit estimate is expected to decrease by 44% compared to 1.4 trillion KRW in the same period last year, but it is estimated to increase by about 5% compared to 748.4 billion KRW in the previous quarter.

By division, the basic materials division is 670.9 billion KRW, and the battery division is 48.2 billion KRW. Researcher Kyuwon Hwang of Yuanta Securities explained, "Since achieving the highest operating profit of 2.1 trillion KRW in the second quarter of last year, a decline in profits has continued," adding, "However, compared to pure petrochemical companies in the petrochemical downturn cycle, the performance resilience stands out."

The petrochemical division showed mixed trends as production volume increased while spreads declined. After completing the regular maintenance of the Daesan NCC plant in the fourth quarter, production volume was restored in the first quarter. However, the spread of the main product, ABS, fell from 892 dollars in the fourth quarter to 50.9 billion dollars at the end of the first quarter, reflecting concerns about capacity expansion.

In the battery division, sales are expected to decrease from 4.4 trillion KRW in the previous quarter to 4.1 trillion KRW in the first quarter. Researcher Kyuwon Hwang of Yuanta Securities analyzed, "This is because demand for electric vehicle batteries centered in Europe has decreased due to semiconductor supply issues and the Ukraine war."

The target price downgrade reflects the weakness in the battery division. The expected performance for the battery division this year is sales of 19.1 trillion KRW and operating profit of 477.7 billion KRW, which is 57% lower than the previous operating profit estimate (1.1 trillion KRW).

However, the current stock price level of 400,000 KRW is analyzed to be absolutely undervalued. Researcher Hwang said, "The second quarter looks the worst, but the most conservatively evaluated value is around 440,000 KRW," adding, "This applies the petrochemical recession cycle and the minimum value of 46 trillion KRW for the battery subsidiary LG Energy Solution."

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