[Click eStock] "LG Energy Solution, Best Prepared for IRA... Target Price Up 18%"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on LG Energy Solution on the 23rd and raised the target price by 18.3% to 710,000 KRW.

LG Energy Solution is the most advanced in preparing for the IRA. From the second half of this year, it has been operating Ultium Cells (a JV for secondary battery production with GM) Plant 1. It is the first among the three domestic companies to start large-scale JV operations in the United States. Chulhee Cho, a researcher at Korea Investment & Securities, said, “From next year, it will be possible to meet the mineral requirements (40% procurement from the U.S. and U.S. FTA countries),” adding, “The proportion of U.S.-bound secondary battery supply this year and next year is less than 20%, so it can be managed by changing mineral procurement sources.”

Although it is impossible to meet the parts procurement requirement (50% from North America) in the short term, major cathode material suppliers such as POSCO Chemical, LG Chem, and L&F have announced plans to build factories in the U.S., rapidly establishing a regional production system. Through cooperation with the battery recycling company Recycle, they have also signed a recycling contract for secondary battery scrap generated at Ultium Cells, building a system to reprocess and recycle waste.

As the U.S. is expected to lead the global secondary battery market for at least the next five years, it is judged that domestic secondary battery companies will lead this growth. Researcher Cho said, “There is high demand for secondary batteries, but suppliers capable of large-scale production in North America are limited, so customers are quickly securing supply chains,” and forecasted, “As the bargaining power of domestic secondary battery companies increases, the target operating profit margin of recent contract projects will rise from the high single digits to the low double digits.”

Although there are short-term supply and demand concerns regarding the release of lock-up shares held by the employee stock ownership association in January next year, the share ratio is not as large as expected. The share ratio is 3.5%, so even if sell orders emerge, the period during which the stock price is affected is expected to be short. Researcher Cho stated, “As fundamentals strengthen next year, we recommend an active buying strategy if the stock price falls in January or February due to supply and demand concerns.”

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