“LG Energy Solution posts strong results even excluding compensation payments” ... Target price raised

[Financial News] Eugene Investment & Securities maintained its Buy rating on LG Energy Solution, saying earnings improvement is gathering pace as energy storage system (ESS) volumes increase and utilization rises, and raised its target price from 470,000 won to 530,000 won.
Hwang Seong-hyeon, an analyst at Eugene Investment & Securities, said on the 12th, “The effect of higher utilization driven by increased ESS volumes began to be reflected in earnings in earnest from the third quarter,” adding, “We expect to remain profitable in the fourth quarter as well, excluding North American production subsidies (AMPC).”
LG Energy Solution’s preliminary operating profit for the third quarter was 756 billion won, significantly exceeding Eugene Investment & Securities’ estimate. Operating profit excluding the US Advanced Manufacturing Production Credit (AMPC) also came to 339.1 billion won, turning a loss of 127.7 billion won in the previous quarter into a profit. The company remained profitable even after a further 300 billion won in compensation from automakers was excluded.
“Companywide utilization is understood to have risen to as high as 65% in the third quarter,” Hwang said, adding, “We believe the resulting improvement in fundamentals is gathering pace.”
ESS is the key driver of earnings improvement. Hwang said, “ESS revenue surged by 50% or more, driving the earnings surprise,” adding, “It is positive that growth accelerated further in the third quarter after revenue growth reached 17% quarter on quarter in the second quarter.”
Fourth-quarter revenue and operating profit are forecast at 8 trillion won and 679 billion won, respectively. Hwang said, “Further improvement in earnings is expected as bottlenecks in pack production are resolved and fixed-cost burdens ease with operations at North American plants stabilizing,” adding, “For EV batteries as well, losses excluding AMPC are expected to gradually narrow as GM Ultium production expands and utilization at European plants continues to rise.”
Hwang said, “In 2027, improving profitability by raising utilization at existing North American production hubs and expanding ESS output, rather than through new large-scale capacity expansions, is expected to be key,” adding, “As delays in connecting to the North American power grid and greater load variability at AI data centers drive up demand for ESS, new orders are also expected to continue growing.”
[email protected] Joo Won-gyu Reporter