[Click eStock] "LG Chem: Performance Improvement and LG Energy Solution Stake Utilization Expected Next Year"

"Target Price Raised"

On November 3, iM Securities maintained its "Buy" investment rating on LG Chem, stating, "Performance improvement is expected next year due to a recovery in the petrochemical industry and growth in advanced materials." The firm also raised its target price by 35%, from 370,000 won to 500,000 won.

Jeon Yujin, a researcher at iM Securities, commented, "Although weak performance is expected to continue across all divisions in the fourth quarter of this year, this has already been fully anticipated. It is now time to shift our focus to next year."

Operating profit for the third quarter was 679.7 billion won, up 43% quarter-on-quarter and 20.5% above the market consensus of 564 billion won. The petrochemical division returned to profitability with an operating profit of 29 billion won for the first time in five quarters, while LG Energy Solution achieved strong results with an operating profit of 601 billion won, up 22% quarter-on-quarter. Despite a decline in sales due to the end of U.S. electric vehicle (EV) subsidies, LG Energy Solution improved its profitability through increased shipments of energy storage systems (ESS) in the U.S., higher sales of small batteries, and changes in its portfolio composition.

The fourth quarter is expected to see a turnaround to a loss of 113.7 billion won. The petrochemical division is projected to post a loss of 25.7 billion won due to reduced output and related costs from regular maintenance at the Daesan plant. Although LG Energy Solution is expected to maintain growth in U.S. ESS sales, a decline in EV battery shipments, which contribute much more to revenue, is inevitable.

However, Jeon emphasized that more attention should be paid to next year's performance improvement. He stated, "Next year, the chemical division is expected to return to profitability for the first time in about four years, driven by restructuring across all domestic and overseas regions and continued weakness in oil prices. For advanced materials, the base effect from this year's weak cathode material sales, the reflection of some delayed shipments, and the full-scale launch of new shipments to clients such as Toyota could result in a significant increase in volume."

The potential for further utilization of LG Energy Solution shares was also highlighted as an investment point. On November 1, LG Chem announced a plan to raise 2 trillion won by selling a stake in LG Energy Solution. Jeon noted, "Even considering the current perpetual convertible bond (PRS) transaction and the exercise of the third exchangeable bond warrants, LG Chem's stake in LG Energy Solution still stands at 79.4%, leaving room for further utilization next year."

In particular, LG Chem has stated that it plans to use the PRS funds for debt repayment and shareholder returns, which could serve as grounds for reducing the discount rate applied to the value of its LG Energy Solution stake in the future. Jeon added, "Up to now, the main reason for the discount in LG Chem's share price has been its excessive holding of LG Energy Solution shares and its lukewarm approach to utilizing them. This PRS transaction could gradually dispel such concerns."

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