Advanced Materials Earnings Growth Merits Attention
The author is an analyst of KB Securities. He can be reached at yc.baek@kbfg.com. -- Ed.
Maintain BUY but cut target price to KRW760,000
We maintain BUY on LG Chem but cut our TP by 18.9% to KRW760,000. We lower 2022E OP by 12.6%, reflecting weaker Petrochemicals earnings due to rising production costs and sluggish demand, but we maintain BUY given Advanced Materials earnings growth driven by better battery material sales volume and LG Energy Solution EV improvement.
1Q22 OP beats market consensus
LG Chem reported 1Q22 revenue/OP of KRW11.61tn (+20.4% YoY, +6.0% QoQ)/ KRW1.02tn (-27.3% YoY, +36.9% QoQ), with OP beating the market consensus of KRW903.3bn (FnGuide; Apr 26). The robust results were attributable to (1) solid Petrochemicals margins and (2) sharp Advanced Materials earnings growth. 1Q22 Petrochemicals revenue/OP came in at KRW5.96tn (+9.9% QoQ)/KRW635.0bn (-7.5% QoQ). OPM eroded QoQ but reached a robust 10.6% despite softer demand amid lockdowns in China. Advanced Materials revenue improved sharply to KRW1.57tn (+34.6% YoY), with OP at KRW154.0bn (+71.9% YoY); the unit achieved both top- and bottom-line growth on higher battery material shipments and increased selling prices.
Advanced Materials earnings growth merits attention
We forecast 2Q22 revenue/OP at KRW12.50tn (+7.7% QoQ)/KRW880.4bn (-14.1% QoQ). 2Q22 Petrochemicals OP should slide 12.4% QoQ to KRW556.5bn (9.3% OPM) on limited selling price increases despite a QoQ increase in feedstock input costs. For 2022, we see Advanced Materials OP surging 69.8% YoY to KRW406.8bn (6.7% OPM) on selling price hikes (reflecting rising feedstock costs) and greater revenue contribution from premium products (i.e., high-nickel cathodes).