NH Investment & Securities said on the 2nd that LG Energy Solution's stock is expected to stabilize following the announcement of an Ultium Cells production halt and a briefing on last year's fourth-quarter results. It lowered its target price by 23% to 490,000 won from 640,000 won while maintaining a buy rating. The previous trading day's closing price of LG Energy Solution was 368,500 won.
Researcher Joo Min-woo at NH Investment & Securities said, "LG Energy Solution is expected to incur one-off costs such as inventory disposal and line conversion expenses due to a sharp drop in utilization at its U.S. plant," adding, "The two recently announced supply contract terminations targeted the European commercial vehicle market and are worth 2.1 trillion won in annual sales." Based on the timing when deliveries begin, the orders account for 5% to 7% of total sales.
Joo predicted the newly announced Ultium Cells production halt would mark the peak of pessimism. Joo said, "Assuming a production halt in the first half, LG Energy Solution is projecting Ultium Cells' sales volume this year at 6 GWh (28 GWh last year) and estimates related one-off costs at more than 1 trillion won."
NH Investment & Securities expects the stock to stabilize after the Ultium Cells production halt announcement and the results briefing. As weak electric vehicle (EV) sales are fully reflected in the consensus, sensitivity to bad news should diminish, and with continued new orders for energy storage systems (ESS) and conversion investments, medium- to long-term ESS forecasts are likely to be revised up.
In last year's fourth quarter, LG Energy Solution's sales are expected to be 5.9 trillion won, down 8.2% from a year earlier, with an operating loss of 180 billion won. Joo said, "With inventory adjustments across automobile customers and rising ESS costs, companywide operating profit is expected to swing to a loss."