“LG Chem’s Q4 operating profit expected to halve; expectations need to be lowered”

[Financial News] iM Securities said on the 6th that expectations for LG Chem’s fourth-quarter earnings should be lowered, while maintaining its Buy rating and 370,000 won target price.
iM Securities forecast that LG Chem’s fourth-quarter operating profit would plunge 55% from the previous quarter to 254.3 billion won. This is well below the market consensus of 627.9 billion won.
Jang Ho, an iM Securities researcher, said, “Petrochemicals continue to face a reverse-lagging effect amid weak downstream demand, and a large-scale loss is expected as the regular maintenance shutdown at Yeosu No. 1 naphtha cracking center (NCC) proceeds. Both cathode materials and LG Energy Solution are expected to improve their earnings capacity as shipments increase, but the one-off factors from the third and fourth quarters will fade, making a reduction in their absolute scale inevitable.”
He added, “In Life Sciences, additional upfront payments from the licensing-out (L/O) of technology for a rare obesity treatment are being recognized in installments over the next four years. This year, that portion will be recognized in the fourth quarter, and both sales and operating profit are expected to rise sharply from the previous quarter and a year earlier.”
He noted that cathode materials had been a major driver of the share price and earnings, but that large-scale losses persisted in the first half amid a halt in GM-related volumes and delays in shipments to new customers, among other factors, leaving no catalyst for a rally. GM volumes are expected to resume in the second half, while shipments to new customers also increase, but the business is expected to follow a first-half-high, second-half-low trend. He judged that an increase in shipments from the previous year would be difficult to expect.
On next year’s results, he forecast, “There will be a base effect, but as shipments to new customers such as GM, Panasonic Corporation and Tesla ramp up, volumes are expected to reach 62,000 metric tons, up about 95% from this year.” He added, “Considering profit improvements across all business divisions next year, the monetization of LG Energy Solution shares and the cancellation of treasury shares through it, as well as the additional capacity for dividend payments this would provide, upward pressure on the share price is likely to be greater than downward pressure at current levels.”

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