[Click eStock] "LG EnSol, Surprise Earnings... Q2 Performance Also Improves"

[Asia Economy Reporter Ji Yeon-jin] Korea Investment & Securities announced on the 8th that it maintains a buy rating and a target price of 570,000 KRW for LG Energy Solution, expecting improved earnings in the second quarter following a surprise performance in the first quarter of this year.

Researcher Cho Cheol-hee of Korea Investment & Securities explained, "The suspension of Tesla's Shanghai factory operations is a short-term concern, but if the suspension is prolonged, it is highly likely that the small battery volume from the Nanjing factory will be exported to Tesla's European factory, limiting the impact," adding, "Since they are actively securing aggressive customers (GM, Stellantis, Honda, etc.) through joint ventures (JV) in the U.S. market, the direction for mid- to long-term growth is clear."

LG Energy Solution recorded sales of 4.3 trillion KRW and an operating profit of 258.9 billion KRW (operating margin 6%) in the first quarter. The operating profit significantly exceeded the market forecast of 163.9 billion KRW. In this earnings announcement, only sales and operating profit were disclosed, with detailed information to be released as preliminary earnings at the end of the month.

Researcher Cho estimated, "Sales and operating profit of small batteries (cylindrical type) likely greatly exceeded market expectations," estimating sales of 1.6 trillion KRW and operating profit of 204.2 billion KRW, and added, “The increased raw material prices are being passed on to original equipment manufacturers (OEMs) through product price hikes.”

The company faced difficulties in raw material procurement due to semiconductor chip shortages and geopolitical risks, which burdened first-quarter earnings. However, Tesla’s first-quarter vehicle deliveries increased by 68% year-on-year, and through design and production superiority, it is analyzed that LG Energy Solution’s small battery division led strong performance by outperforming other automotive OEMs.

Since the pass-through rate of raw material price increases to customers is not 100%, the sharp rise in raw material prices in March may slightly increase cost burdens in the second quarter. However, due to seasonal sales growth and productivity improvements, second-quarter earnings are also estimated at sales of 4.7 trillion KRW and operating profit of 233 billion KRW.

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