Company Reports

March-quarter revenue and operating profit for LG Energy Solution, or LGES, were both weaker than we expected. Management attributed the revenue decline to weak battery demand from electric vehicle, or EV, and energy storage makers and a fall in battery prices due to the lithium price drop. We lower our 2024-26 revenue estimates by 2%-3% due to a reduced outlook for EV battery demand. To factor in the margin weakness in EV battery sales, we reduce our 2024-26 operating income forecasts by 8%-21%. We reduce our fair value estimate to KRW 311,000 per share from KRW 366,700, which corresponds to 49 times P/E and 16 times enterprise value/EBITDA on a 2024 basis.

LG Energy Solution, or LGES, was spun off from LG Chemical’s battery subsidiary in December 2020 and listed on the Korea Exchange in January 2022. LG Chemical retains around an 82% share of LGES. The company is one of the top lithium-ion rechargeable battery suppliers globally. It is the third-largest global battery maker for electric vehicles, or EVs, with 15% share by shipment in 2023, according to SNE Research. The company’s customers include many leading automakers such as Tesla, General Motors, Volkswagen, and Hyundai.

December-quarter revenue and operating profit for no-moat LG Energy Solution, or LGES, were both weaker than we expected. Management attributed the fourth-quarter revenue drop to key auto customers’ inventory destocking and decline in battery price, due to a prolonged lithium price drop. We lower our 2024-26 revenue estimates by 2%-10% due to a reduced outlook for electric vehicle, or EV, power battery demand. To factor in a prolonged margin weakness in EV battery sales, we cut our 2024-26 operating income forecasts by 5%-15%. We lower our fair value estimate to KRW 366,700 from KRW 369,100, which corresponds to 41 times P/E and 16 times EV/EBITDA on a 2024 basis.

LG Energy Solution, or LGES, was spun off from LG Chemical’s battery subsidiary in December 2020 and listed on the Korea Exchange in January 2022. LG Chemical retains around an 82% share of LGES. The company is one of the top lithium-ion rechargeable battery suppliers globally. It is the third-largest global battery maker for electric vehicles, or EVs, with 14% share in the first half of 2023, according to SNE Research. The company’s customers include many leading automakers such as Tesla, General Motors, Volkswagen, and Hyundai.

We initiate coverage on LG Energy Solution, or LGES, with a no-moat rating, fair value estimate of KRW 369,100, and 2-star Morningstar rating. Our fair value implies a 2024 price/earnings ratio of 37 times and EV/EBITDA of 14 times. While we're optimistic about LGES’ battery business outlook and believe the firm will be able to maintain its leading position in the automotive battery industry, shares are overvalued, as market expectations on margin expansion and a potential tax rebate from the U.S. Inflation Reduction Act are stretched, in our view.

LG Energy Solution, or LGES, was spun off from LG Chemical’s battery subsidiary in December 2020 and listed on the Korea Exchange in January 2022. LG Chemical retains around an 82% share of LGES. The company is one of the top lithium-ion rechargeable battery suppliers globally. It is the third-largest global battery maker for electric vehicles, or EVs, with 14% share in the first half of 2023, according to SNE Research. The company’s customers include many leading automakers such as Tesla, General Motors, Volkswagen, and Hyundai.