First Time to Post Quarterly OP in Excess of W2tn
The author is an analyst of NH Investment & Securities. He can be reached at ys.hwang@nhqv.com. -- Ed.
LG Chem recorded its highest-ever quarterly OP (over W2tn), thanks to one-off battery-related profits and robust petrochemical earnings. Believing that battery and battery materials-related business growth will sustain over the long term, we maintain a Buy rating and TP of W1,100,000.
First time to post quarterly OP in excess of W2tn
LG Chem logged 2Q21 OP of W2.23tn (+312.4% y-y, +58.4% q-q), its strongest quarterly performance ever. While about W1tn of profit was reflected from its settlement of a battery-related lawsuit with SK Innovation, W400bn was deducted due to an ESS battery recall accident, leaving W600bn to ultimately be recorded as one-off gains. Excluding one-off profit, 2Q21 sales are estimated at W10.5tn and OP at W1.7tn, which are record-high figures. Overall performance improvement was led by strong petrochemical business OP.
At the basic chemicals division, the effect of low-priced raw material input (due to global supply disruptions, rising oil prices, and improved demand) helped to produce all-time high sales and OP figures. At the division, OP increased by W341bn q-q to W1.32tn (OPM of 25.1%). Global facility expansion is to continue in 2H21, with OP decreasing slightly on the ending of low-cost raw material effects.
Battery and battery materials-related growth to continue
At the battery division, 2Q21 OP reached W815bn on the reflection of one-off profits of W600bn. We expect the firm’s production capacity for EV batteries to expand to 150GWh (including cylindrical and pouch type batteries) at end-2021 and 430GWh by 2025. Order backlog has climbed from W150tn as of end-2020 to W180tn as of late (3Q21). Earnings at the battery materials arm of LG Chem’s high-tech materials business are also on the rise in line with greater EV battery production capacity. The firm aims to see related sales of W8tn by 2026.
Although OP will likely fall to W1.123tn (+24.5% y-y, -49.7% q-q) in 3Q21 due to the elimination of one-off profits and slowing profitability at the petrochemical business, overall earnings should remain exceptional. At the battery business, we expect that OP momentum will kick off from 3Q21 on the back of sales increase.