Hana Securities noted on the 27th that as energy storage system (ESS) production increases at LG Energy Solution, the dominant shareholder's net income may also rise in the future. It then adjusted its target price from the previous 336,000 won to 450,000 won and upgraded its investment opinion from 'neutral' to 'buy.'
LG Energy Solution recorded a revenue of 5.6 trillion won for the second quarter of this year, a 10% decrease compared to the previous year, while operating profit increased by 152% to 492.2 billion won during the same period. Excluding the effects of American manufacturing subsidies (AMPC), the operating profit margin returned to a profit after six quarters.
The institutional sector for medium and large electric vehicle batteries continued to see a decline in market share within Europe, but profitability improved due to compensation received for failing to meet planned quantities and an increase in the operation rate of the U.S. factory. The small battery sector saw revenue decline by 21% compared to the previous year due to weak forward demand.
The third quarter results are expected to maintain a profit trend, with ESS revenue increasing and the operation rate of the Hyundai Motor factory line in Asia rising, leading to a recorded operating profit margin of 2.5%, excluding AMPC.
Hana Securities judged that LG Energy Solution has entered a critical inflection point in its performance flow as production of ESS in the U.S. has begun. A tariff on Chinese ESS batteries will be imposed from 2026, and the local ESS factory is expected to begin full-scale operations.
Researcher Kim Hyun-soo from Hana Securities stated, "These factories hold 100% equity, and unlike the electric vehicle lines, they can receive the $35 subsidy per kilowatt hour (KWh) without sharing with clients, meaning not only will they contribute to annual operating profit, but they will also significantly boost the dominant shareholder's net income."
Researcher Kim analyzed that the increase in ESS production could result in a 54% increase in the projected net income of LG Energy Solution for 2027. This represents an upward adjustment in earnings per share (EPS) for the first time in two years.
Researcher Kim noted, "Some raise doubts about the sustainability of the policy, but after the Republican Party seized control of both the executive and legislative branches, the philosophy of the manufacturing reshoring policy has been maintained through AMPC, indicating a high possibility of long-term policy support."
He added, "After the subsidies end in 2032, it is expected that the operation rate of the existing line will reach its maximum without any additional expansions, achieving an appropriate net profit margin of 7%. He recommended expanding the weight, noting this is a phase of upward adjustment of profit estimates for the first time in two years."