[Click eStock] "LG Energy Solution, Earnings Differentiation Due to Customer Effects"

[Asia Economy Reporter Kwon Jaehee] Meritz Securities on the 30th gave LG Energy Solution a 'Buy' investment rating and set a target price of 680,000 KRW.

LG Energy Solution achieved sales of 8.5 trillion KRW and an operating profit of 237.4 billion KRW in the last quarter. Despite uncertainties in the business environment such as vehicle semiconductor shortages and demand slowdown, it posted the highest annual performance ever. The reasons behind the lowered expectations for the fourth quarter operating results include one-time costs such as bonus payments, additional provisions for energy storage systems (ESS), cost burdens due to declines in metal prices and KRW-USD exchange rates leading to lower selling prices, and sluggish shipments to some customers.

Operating profit for the first quarter of this year is expected to be 423.1 billion KRW. The annual estimates foresee sales of 35.2 trillion KRW and operating profit of 2.3 trillion KRW, representing increases of 37% and 91% respectively compared to the previous year. This estimate somewhat exceeds LG Energy Solution's 2023 sales guidance.

[Image source=Yonhap News]

This year, LG Energy Solution's performance is expected to be influenced by the market dominance of Tesla, its main customer for cylindrical batteries. Tesla expanded its market share through price reductions while increasing production capacity at key market bases such as the US and Germany. Tesla hinted at the possibility of exceeding its 2023 sales guidance of 1.8 million units and disclosed increased shipments from Giga Berlin and Giga Austin. LG Energy Solution's cylindrical battery segment is linked to Tesla's sales growth, with additional profitability improvements expected due to regional share shifts and mass production of the new 4680 battery form factor.

Researcher Noh Wooho of Meritz Securities analyzed, "Despite last year's uncertainties in the business environment, LG Energy Solution demonstrated the competitiveness of a market leader," and added, "This year, performance differentiation will accelerate, driven by the market dominance of end customers and customer effects."

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