Yuanta Securities Korea said on the 9th that LG Energy Solution, which posted an operating loss in the first quarter of this year, reported results below the consensus (market average estimate) due to lower utilization rates and heavier fixed-cost burdens. It maintained its investment opinion of Buy and its target price of 531,000 won. LG Energy Solution's previous closing price was 406,000 won.
LG Energy Solution recorded first-quarter revenue of 6.555 trillion won and an operating loss of 207.8 billion won. Profit from the U.S. Inflation Reduction Act (IRA) advanced manufacturing production tax credit (AMPC) program came to 189.8 billion won this quarter; excluding that, the operating loss is 397.5 billion won. On an operating profit basis, results came in below the consensus.
Ahn-na Lee, an analyst at Yuanta Securities Korea, said, "Operating profit fell short of the consensus as lower demand for North America-bound electric-vehicle (EV) pouch cells led to a decline in utilization rates and heavier fixed-cost burdens, and transitional expense occurred during the process of switching lines from EVs to energy storage systems (ESS) to adjust the product mix, with these factors overlapping."
Yuanta Securities Korea projected second-quarter results of 6.672 trillion won in revenue and 161 billion won in operating profit. It said such results should be possible on the back of ESS-centered top-line growth and increased reflection of the AMPC program.
The analyst said, "LG Energy Solution plans to expand its annual ESS production capacity to more than 60 GWh, with 80% of that to be handled in North America," adding, "In particular, as orders for artificial intelligence (AI) DC have not yet entered full swing, related order momentum remains intact."
It also projected that ESS-centered top-line growth will continue through 2028 thanks to rapid line conversions.
The analyst said, "For EVs, low utilization rates continue across North America and Europe, but as line conversions in Europe are completed, the utilization improvement trend is expected to persist throughout the year," adding, "In the second half, results should start to improve in earnest, driven by higher utilization at the Ochang plant for the 46 series and the start of mass production at the Arizona plant at year-end."