[Click eStock] "LG EnSol, Sales Growth and Profitability Improvement Together"... Target Price Up

[Asia Economy Reporter Lee Jung-yoon] Hana Securities maintained its buy rating on LG Energy Solution on the 28th, reflecting the accelerated increase in cylindrical battery sales and improved profitability of medium-to-large batteries, and raised the target price from the previous 505,000 KRW to 530,000 KRW.

LG Energy Solution's sales in the second quarter of this year were 5.1 trillion KRW, down 1% year-on-year, and operating profit was 195.6 billion KRW, down 73%, missing consensus estimates. Despite the year-on-year decline in sales and operating profit, excluding the approximately 1 trillion KRW royalty reflected in sales and operating profit in the form of operating income in the second quarter of last year, sales are estimated to have increased by 23% year-on-year and operating profit turned positive.

LG Energy Solution's operating profit margin recorded 3.9%, down 2.1 percentage points from the previous quarter due to rising maritime freight and metal raw material prices by segment. In the small battery segment, which accounts for about 40% of total sales, the shipment of cylindrical batteries for Tesla continued to increase, resulting in a 100% year-on-year increase in segment sales. Also, due to the off-season for smartphones, the operating rate of small pouch batteries declined, resulting in a segment operating profit margin of 9.1%.

The automotive battery segment, which accounts for 51% of sales, saw an 8% increase in segment sales quarter-on-quarter due to increased battery shipments to respond to new car launches by major customers such as Volkswagen and Ford in the second half of this year. However, due to rising metal prices and maritime freight, the segment operating profit margin is expected to fall 1.3 percentage points quarter-on-quarter to 0.7%.

The energy storage system (ESS) segment, accounting for 9% of sales, showed a 58% increase in sales year-on-year, reflecting sales from major overseas projects. Although the operating profit margin remained negative at -1.4%, the operating loss rate is estimated to have improved by 2.1 percentage points quarter-on-quarter.

LG Energy Solution is expected to record a sharp performance increase in the third quarter of this year. Third-quarter sales are projected to increase 47% year-on-year to 5.9 trillion KRW, with operating profit turning positive to 304.9 billion KRW.

Kim Hyun-soo, a researcher at Hana Securities, explained, "From the end of July, Tesla's Shanghai Gigafactory production capacity (CAPA) is expected to increase by about 30% compared to the existing capacity, expanding benefits for the cylindrical electric vehicle battery segment, which accounts for about 20% of total company sales." He added, "The price pass-through of rising metal prices in the medium-to-large battery segment will begin in earnest from the third quarter, and profitability improvement effects are also expected to accompany this."

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