[Click eStock] "LG Chem, 2Q Cathode Material Demand Slowdown Unavoidable"

Electric Vehicle Demand Remains Uncertain
European Customer Order Volume Expected to Drop by Over 20%

LG Chem posted better-than-expected results for the first quarter of this year. This was due to a surprise performance by its battery subsidiary and steady growth in its advanced materials division. However, for the second quarter of this year, the company is expected to deliver somewhat disappointing results as cathode material sales are projected to decline significantly.

On May 2, Samsung Securities lowered LG Chem's target stock price by 4.9% to 290,000 won for these reasons. The closing price on the previous trading day was 216,000 won. The investment opinion of "Buy" was maintained.

The first quarter results this year were solid. Revenue reached 12.171 trillion won and operating profit was 447 billion won, up 4.8% and 68.9%, respectively, compared to the same period last year. In particular, operating profit exceeded the market consensus of 166.8 billion won by 168%.

In detail, the basic materials business recorded an operating loss of 56 billion won. Profitability deteriorated due to a shutdown caused by a power outage at the Daesan plant and increased electricity unit costs. Nevertheless, as the impact of regular maintenance in the previous quarter disappeared and the won-dollar exchange rate improved, the size of the loss decreased by 44.5 billion won compared to the previous quarter.

The advanced materials business posted an operating profit of 127 billion won, up 165% from the previous quarter. The operating margin also improved from 3.5% in the previous quarter to 8.5% in the first quarter of this year. The average selling price (ASP) of the cathode materials business, measured in dollars, was also favorable. The battery subsidiary, LG Energy Solution, recorded an operating profit of 374.7 billion won, far exceeding the market consensus of 67 billion won and delivering a surprise result.

From the second quarter onward, somewhat disappointing results are expected. Operating profit is projected to reach 360.6 billion won, which would mark a return to profit compared to the same period last year, but represents a decrease of about 19% from the first quarter. Most of this is expected to be driven by the strong performance of LG Energy Solution. Cathode material results are expected to be particularly weak, with estimated revenue of 530 billion won and an operating loss of 21 billion won. Due to weak raw material prices, the ASP is expected to fall by about 5% compared to the previous quarter, while shipment volume is forecast to decline by 23% over the same period. European automakers made larger-than-expected purchases in the first quarter, leading to an anticipated reduction in order volume in the second quarter. However, a significant decrease in orders from North American customers is not expected.

Cho Hyunryul, a researcher at Samsung Securities, explained, "Due to uncertainties such as US-imposed tariffs and the Inflation Reduction Act (IRA), demand for electric vehicles remains unclear, which leads to a negative outlook for LG Chem's battery cell subsidiary and advanced materials business. However, the proactive recovery of basic materials profitability due to falling international oil prices is a positive factor."

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