NH Investment & Securities analyzed on the 18th that LG Chem's operating profit for the fourth quarter will fall below the market consensus (average forecast in the securities industry) due to the impact of inventory adjustments by its customers. It maintained its investment opinion as "buy," but lowered the target stock price from 440,000 won to 380,000 won.
NH Investment & Securities projected that LG Chem's revenue for the fourth quarter will reach 12.768 trillion won, with an operating loss of 149.8 billion won. The operating profit is about 2 billion won lower than the market consensus of 60.1 billion won.
Choi Young-gwang, a researcher at NH Investment & Securities, noted, "Due to inventory adjustments by customers, the advanced materials institutional sector and its subsidiary LG Energy Solution are expected to record operating profits of 84.7 billion won and an operating loss of 154.5 billion won, respectively." He added, "Sales and prices of cathode materials are projected to decline by 30% and 10% compared to the previous quarter, resulting in an operating profit margin of 0.5%."
In the case of the petrochemical institutional sector, the operating loss is expected to reach 19.4 billion won. Regarding this, Choi stated, "The spread weakness will persist, leading to continued operating losses following the previous quarter."
Choi also expressed concerns about the uncertainty in the U.S. market. He remarked, "Demand is slowing, and the U.S. electric vehicle subsidy policy is unclear," noting that he lowered the performance forecast and target multiple (enterprise value multiple) for LG Energy Solution (20.4 times to 16.5 times) and accordingly raised the estimated net borrowings, which led to a reduction in LG Chem's target stock price.
However, Choi expected that LG Chem's performance may improve next year. He remarked, "Although the petrochemical industry has been in recession for a long time, LG Chem's cathode production capacity is expanding," and added, "LG Energy Solution is also expected to see a recovery in performance next year."