Shinhan Investment & Securities on July 6 cut LG Energy Solution's target price to 550,000 won from 600,000 won while keeping a 'buy' rating. The firm expects profitability pressure through Q2 due to line conversion costs. However, Shinhan projects the second half will bring accelerated ESS order growth, with ESS sales rising 46% versus the first half.
Shinhan Forecasts Q2 Operating Profit at 246 Billion Won
Shinhan Investment & Securities estimated LG Energy Solution's Q2 operating profit at 246 billion won, marking a return to profitability from the previous quarter. This forecast exceeds the consensus estimate of 203.4 billion won.
The brokerage projected the medium and large battery segment will achieve operating profit of 96.5 billion won in Q2, also turning profitable. EV battery sales are expected to reach 3.1 trillion won, up 8% quarter-over-quarter, driven by recovered shipments to Europe and compensation payments despite weakness in the U.S. electric vehicle market. Profitability in this segment is anticipated to improve compared to the previous quarter.
ESS battery sales are estimated at 2.4 trillion won, up 43% from the prior quarter, supported by expanded operations of new North American production lines and eased pack bottlenecks. Operating profit in ESS is expected to turn positive despite fixed cost burdens, aided by expanded Advanced Manufacturing Production Credit (AMPC) benefits.
In the small battery division, Shinhan forecast sales of 2.2 trillion won, up 11% year-over-year, with operating profit of 149.5 billion won, representing a 17% annual increase. The firm attributed the improvement to higher cylindrical battery shipments driven by strong Tesla sales in Europe and Asia.
Second-Half ESS Sales Projected to Grow 46% Over First Half
Shinhan Investment & Securities assessed that the second half will mark a phase of full-scale order intake and earnings growth in LG Energy Solution's ESS business. The brokerage noted large-scale orders continue, including a contract with DTE Energy, the largest integrated energy company in the United States. Second-half ESS sales are projected to increase 46% compared to the first half.
Analyst Cites Line Conversion Costs as Q2 Headwind
Lee Jin-myeong, a researcher at Shinhan Investment & Securities, stated that while LG Energy Solution's structural growth in the ESS segment remains valid, a stock rerating requires normalized profitability and reduced losses in the automotive battery division. Lee noted that profitability will remain weak through Q2 due to line conversion costs, but expects a turnaround driven by rising utilization rates and expanded AMPC benefits.
FAQ
Why did Shinhan Investment & Securities lower LG Energy Solution's target price?
Shinhan cited line conversion costs and expected profitability pressures through the second quarter as reasons for cutting the target price from 600,000 won to 550,000 won.
What is Shinhan's Q2 operating profit forecast for LG Energy Solution?
Shinhan estimated Q2 operating profit at 246 billion won, exceeding the consensus of 203.4 billion won and marking a return to profitability from the previous quarter.
What is driving LG Energy Solution's second-half ESS growth outlook?
Shinhan projects second-half ESS sales will grow 46% versus the first half, supported by large-scale orders including a contract with DTE Energy and expanded North American production capacity.
