LG Energy Solution Ltd
KRX:373220
US |
Fubotv Inc
NYSE:FUBO
|
Media
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
US |
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
|
CN |
NIO Inc
NYSE:NIO
|
Automobiles
|
|
US |
Fluor Corp
NYSE:FLR
|
Construction
|
|
US |
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
|
US |
TopBuild Corp
NYSE:BLD
|
Consumer products
|
|
US |
Abbott Laboratories
NYSE:ABT
|
Health Care
|
|
US |
Chevron Corp
NYSE:CVX
|
Energy
|
|
US |
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
|
US |
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
|
US |
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
|
US |
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
|
US |
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
321 000
493 500
|
Price Target |
|
We'll email you a reminder when the closing price reaches KRW.
Choose the stock you wish to monitor with a price alert.
Fubotv Inc
NYSE:FUBO
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
C
|
C3.ai Inc
NYSE:AI
|
US |
Uber Technologies Inc
NYSE:UBER
|
US | |
NIO Inc
NYSE:NIO
|
CN | |
Fluor Corp
NYSE:FLR
|
US | |
Jacobs Engineering Group Inc
NYSE:J
|
US | |
TopBuild Corp
NYSE:BLD
|
US | |
Abbott Laboratories
NYSE:ABT
|
US | |
Chevron Corp
NYSE:CVX
|
US | |
Occidental Petroleum Corp
NYSE:OXY
|
US | |
Matrix Service Co
NASDAQ:MTRX
|
US | |
Automatic Data Processing Inc
NASDAQ:ADP
|
US | |
Qualcomm Inc
NASDAQ:QCOM
|
US | |
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
[Interpreted] Good morning. This is Sara Hwang, Head of IR from LG Energy Solution. Thank you for joining our Q4 2023 Earnings Conference Call. First, I'd like to introduce who are present today. CFO, Lee Chang Sil; [ Kang Chang-Bum ], CSO; [ Seung Soo Han ], in-charge of Finance and Accounting Group; Lee Sangyoon, in-charge of Finance; [indiscernible] in-charge of Planning and Management; Kim Dong-Myung, in-charge of Advanced Automotive Battery Planning and Management; [indiscernible] in-charge of Mobility and IT Battery Planning Management; and [indiscernible], in-charge of ESS Battery Planning and Management.
For your reference, the presentation of our business performance and strategy will be conducted with simultaneous interpretation. After which, we will have Q&A with consecutive interpretation. The presentation slide will be webcast live and also downloadable on the corporate website. In this conference call, I'm going to briefly share our Q4 financial results and annual business performance and key initiatives. And then CFO will explain 2024 market outlook, key initiative and annual guidance, followed by Q&A session.
Please note that the forward-looking statements included in the call are subject to change according to amendments in future business environment and corporate strategies.
First, let me explain 2023 key achievements. As a result of actively responding to demand centering around North America, which showed relatively solid growth, annual revenues amounted to KRW 33.7 trillion, we have continued to grow at a considerable pace of 30% per year for 2 consecutive years.
Regarding operating profit despite the lagging impact of the high cost of input raw materials compared to the battery ASP, as metal prices continue to decline throughout the year, with efforts to improve cost such as reducing logistic costs and improving yield and productivity and tough IRA tax credit benefit of around KRW 677 billion recognized profit, annual OP recorded KRW 2.2 trillion OP by 78% Y-o-Y. As [indiscernible] shown in these financial results last year was the year when our company began North American business in earnings.
GM JV Phase 1, which began operation from the beginning of 2023, carried [ stable mass ] products and based on our operational excellence, through this together with Michigan plant, we were able to preemptively recognize IRA Tax credit. Also, we decided investment for cylindrical and ESS product in Arizona. And accordingly, we are establishing products and [ Infra ]. In addition, we have further strengthened our customer portfolio. Last May, we decided to set up a second JV with a capacity of about 30 gigawatt hour, with Hyundai Motor Group in Georgia, U.S.
And in last October, we have achieved the conclusion of a supply contract with Toyota, the world -- number automaker of about 20 gigawatt hour. As a result, the order backlog has increased by about KRW 300 trillion over the past 2 years, we have secured all of the global top 9 OEMs as our customers. Lastly, to build a sound, sustainable and supply chain. Last May, we signed an equity investment and long-term supply agreement with a company owning a lithium mine in Canada.
And last year, we signed a joint development agreement and investment contract for artificial graphite. And by doing so, we're expanding direct sourcing of IRA eligible minerals within the U.S. active zone and also have adjusted our supply chain to comply with FEOC regulations. Furthermore, we established a recycling joint venture in China last August, with competent partners at each production base. We are exploring strategic collaboration for battery recycling to establish a systematic [indiscernible] cycle of resources.
Next, let me briefly explain Q4 business results. In Q4 2023 revenue marked about KRW 8 trillion based on the production of GM JV Phase 1, we expanded our EV battery shipment toward North America region, also in active response to the demand of power grid in North America, ESS revenues grew about 3x Q-o-Q, however, impacted by conservative year and inventory holding by major EV customers, the decline in battery prices due to metal price erosion, revenues in Q4 was down 3% Q-o-Q.
For profitability with the lagging impact of input raw material prices expanded, fixed cost increased due to the adjusted utilizing rate in the production line in Poland in response to demand slowdown in Europe. As a result, operating profit in Q4 '23 -- 2023 amounted to KRW 338.2 billion, down by 54% Q-o-Q. Meanwhile, IRA tax credit effect increased by 16% Q-o-Q resulting in operating profit of KRW 88.1 billion with IRA tax credit. In non-operating items, even with foreign currency-related profit, such as translation profit from foreign currency-denominated borrowing due to some disused asset disposal and others, non-operating loss in Q4 came in at around KRW 51 billion. The net profit recorded a KRW 190 billion, with net profit margin of 2.4%.
Next financial position. The total assets at the end of 2023 increased by KRW 7.138 trillion from the previous year-end to stand at KRW 45.437 trillion with liabilities to equity ratio of 86% and net debt-to-equity ratio of 24%. For annual cash flow, in spite of around KRW 4.4 trillion of EBITDA generation, around KRW 2.8 trillion of issuance of domestic and foreign currency denominated corporate bond and others, CapEx amount was around KRW 10.9 trillion, which was mainly executed for new JV capacity in North America. The cash balance at the end of the year decreased by KRW 869 billion compared with the previous year-end to reach KRW 5.069 trillion.
Let me move on to our next part by CFO.
[Interpreted] Good morning and evening. This is Lee Chang Sil. In this conference call, we'd like to share our view on market outlook and the key initiatives that we will be focusing on this year. First, we'll explain how we are forecasting the battery market in 2024. First, the global EV demand, which is the most impactful market for us, is expected to grow at the mid-20% range compared to the previous trend of over 30% every year, a temporary slowdown is expected. Nevertheless, North America, where the company's focus is expected to grow at a rate relatively higher than other regions. So its EV penetration rate is focused to reach mid 10% in 2024.
Meanwhile, looking at the price trend of lithium hydroxide, which is a major raw material for batteries, as the decline has continued since Q4 2022 throughout 2023. The price is now down about 80% compared to the peak and averaging at $14 per kilogram. Until the first half of this year, cathode and battery prices are expected to be under such impact. That said OEMs are likely to control the inventories in a conservative manner for the time being.
Like this, this year's demand environment is subject to some volatility and uncertainty, but we believe that there are opportunities for growth. In particular, OEM's active markdown effort of EVs and the intention to launch [indiscernible] models, are anticipated to have positive impact on improving consumer interest and purchasing sentiment in EVs. Also, the downward trend in metal prices that has continued for over one year will ease the burden of better prices compared to the past.
That said, as soon as the inventory currently held by OEMs is depleted, we expect restocking demand to be realized. In terms of competitive dynamics with Chinese battery suppliers engaging market competition, the competitive environment in Europe is getting more fierce. Also in the last year EV segment, interest in affordable battery solution is increasing, which in turn intensifies competition for related chemistry technology. Nevertheless, EV demand in North America, as mentioned, is forecast to stay relatively solid, reaching over 30% of growth.
On the other hand, due to various regulations in the U.S. and other regions, it is true that there are a limited number of suppliers capable of reliably producing batteries at local sites. So for the company like us, which pursue localization preemptively based on abundant global operation know-how, we think it will act as an opportunity to differentiate quality and technological leadership as well as maximize first-mover advantage.
Meanwhile, as a factor that has a significant impact on the EV and battery industry, the regulation and policy landscape cannot be left out. There may be temporary volatility due to the U.S. presidential election, but in the mid- to long run, the need for global carbon neutrality to ensure sustainability, and as part of this, the trend toward expand electrification remains unchanged. Also, like IRA in the U.S. and CRMA in Europe, supply chain localization policy by region will also serve as an opportunity for us because we have already secured regional battery production and value chain.
In this critical market environment, we will be committed to turning this into opportunities so that we can have competitive superiority as a global-first-mover when demand recovers. So we are going to focus on implementing these 3 key initiatives thoroughly; first, establishing technological leadership; second, securing cost competitiveness and third, preparing for future business to strengthen our fundamentals and achieve quantitative growth.
First, we aim to secure a level of technological leadership that outperforms our competitors. In automotive battery area for the premium segment where we already have strength, we plan to continue to advance materials such as NCMA with over 90% of nickel and silicon anode materials. Also, we're going to differentiate products with advanced thermal safety so that we can widen the gap with our competitors more clearly.
In addition, by focusing on timely launch, by 2025, of new products for [indiscernible] segment, which is high-voltage mid-nickel and LFP, will further strengthen our customized product portfolio to meet EV market needs in all segments. In the small battery business, we would like to gain competitive edge through mass production of 46-Series, a new Cylindrical Form Factor from the second half of this year. Additionally, in the ESS business, we are starting to supply LFP product in [ earnest ], which began production at the end of last year and also plan to expand our integrated solutions business.
Second, securing structural cost competitiveness. In a business environment where external volatility is somewhat high such as this year, we believe that creating a concrete cost structure capable of maintaining unwavering competitiveness despite any external variables is although more important. Therefore, we plan to expand direct sourcing to include precursor in addition to usage in metal sourcing. Also by conversion of material, their technological development and strengthen direct investment in value chain will secure fundamental cost competitiveness. Also based on Smart Factory, we will reduce fixed costs through improved productivity and quality and continue to optimize major overhead cost including logistics and utility costs and expenses.
Lastly, we'll do our best for future readiness for sustainable growth. With the aim to produce semi solid batteries and lithium-sulfur batteries by 2026 to 2027, we'll proceed with the development of next-gen batteries as planned. In terms of process and technology we'll accelerate the development of dry electrodes with energy density and cost advantages and will start manufacturing our product, applied with new stacking technology with advanced quality and persistence from this year.
In addition, in the recycling business, we want to establish closed loop to secure metal recycling business preemptively with more concrete collaboration with partners in each region.
Last but not least, let us share our annual guidance as we forecast now. First, revenue guidance. We are planning meaningful growth based on the production volume in North America, which is our strategic market, but due to impact of metal prices, starting from a fairly low level, we expect 2024 for annual revenue to grow at the mid-single-digit level Y-o-Y, which is lower than the previous growth rates.
And regarding CapEx investment, we will steadily prepare to expand our production base in North America, including GM JV Phase 2, Stellantis JV and Honda JV, which will become our growth engine. At the same time, we want to adjust the speed of investment execution efficiently and flexibly according to market conditions. Based on this, this year's capacity eligible for IRA tax credit is expected to be 45 to 50 gigawatt hour, more than double the previous year.
Investors, analysts and shareholders, for the past 3 years, since the split of LG Energy Solution has achieved remarkable growth by winning large-scale orders based on customer trust and strengthening operational excellence. This year, a somewhat tough environment is projected. However, we'll rather use this as a stepping stone for greater growth and [ leap forward ] by carrying on solidifying our fundamentals, we will definitely make this an opportunity to achieve qualitative growth. Thank you.
Now this is the end of presentation. Let us move on to Q&A session. [Operator Instructions]
[Interpreted] The first question will be presented by Cho Woo-Hyung from HSBC Securities.
[Interpreted] And also thank you very much for giving us a very detailed briefing despite the not so easy environment. And it seems as if the guidance for the year of 2024 was presented, but I am also curious about the short-term demand forecast because it appears to be a bit unclear at this point. So what is the company's forecast for the first quarter demand as well as the business results?
And second is about the EV battery demand forecast. So when does the company believe that the demand for the EV batteries will also start to improve.
[Interpreted] Thank you very much for your questions. And of course, I do understand there would be curiosity about our short-term expected performance. So now in the first quarter, revenue is expected to fall Q-o-Q due to a generally soft battery demand with declining prices of key metals like lithium, continuing to affect ASP. But starting this year, IRA subsidies will be available to U.S. consumers at the time of purchasing an EV and full-scale new vehicle lineups are planned from strategic customers in the first half of the year. We will actively respond to the relatively strong EV demand in North America, which is expected to gradually improve revenue starting in Q2.
Now from the P&L perspective, profitability is expected to decline in Q1 due to, as I mentioned earlier, the increased lagging effect of raw material costs arising from continued decline in metal prices and lower utilization in Europe as OEMs adjust their production, but we do intend to offset the impact through cost innovation such as material cost innovation and logistics and operation cost reduction as well as by maximizing production efficiency of new capacity from the very beginning with troubleshooting. And through these efforts, we will improve profitability down the road.
And as was explained in the briefing, the business environment in 2024 will be challenging due to a number of factors of the circumstances, but we believe that it can also be turned into an opportunity for greater growth. If we use this time to turn to ourselves and focus on solidifying our fundamentals, we will further strengthen our fundamental competitiveness and lay the basis for a new leap by preparing competitive battery products, ensuring cost competitiveness and preparing for the future by strengthening our value chain.
[Interpreted] This is the CSO,[ Kang Chang-Bum ] to the second part of your question. Now in the EV market, there are short-term factors that are likely to dampen demand due to OEM's inventory correction. What had been aggressive sales plans are now being partly adjusted as OEMs are seeing lower margin from EVs than ICE vehicles. Despite this, OEMs are expanding their new EV lineup, which is carrying the growth momentum across North America, Europe and China.
For the year overall, about 20% to 30% growth in battery capacities is expected Y-o-Y. Now of course, in 2023, there was 30% growth in the battery capacity and also metal prices were rising, which bodes quite well for the revenue as well. But then this year, as I have mentioned earlier, we are also looking for another 20% to 30% growth in terms of the battery capacity. But then the metal prices are likely to fall. And again, we will be seeing the impact on the revenue as well for the year.
And it is true that we are seeing softening of demand growth, but we expect to return to previous growth momentum from 2025, thanks to improved EV product competitiveness more introduction of affordable EVs with better price competitiveness and stronger charging infrastructure.
[Interpreted] The next question will be presented by YongJin Jung from Shinhan Securities.
[Interpreted] I also have 2. Now first, the -- one of the company's major customers in North America, GM, it seems as if there is some delay in the launch of the new models. And will this also have an impact on the company's expected volume and demand? And also given the fact that the company has already given guidance about the IRA credit, does the company believe that this will have an impact on the company as well?
And the second question is now a lot has been said about the EV demand, and I take the message to be that growth is going to continue, although it is going to be non-linear. Then does this also mean that there would be some changes to the company's medium- to long-term investment strategy. So I would hope that there would be some updates on the overall roadmap.
[Interpreted] This is [ Kim Dong-Myung ], in-charge of Advanced Automotive Battery Planning and Management, responding to the first part of your question about the GM's delayed launch of new EV models and the possible impact on the company. Now we do understand that there are some concerns over demand also, especially coming from news reports on the postponement of the launch of our JV partners' new EV models last year. But we are closely discussing volumes with our customers.
We will adjust our pace of production and investment accordingly by reflecting the major OEMs plan to adjust their process of electrification. And as previously explained, we expect to benefit from the IRA tax credit of approximately 45 to 50 gigawatts per annum this year, as production volume from the GM JV Phase 2 begins to contribute to revenue.
[Interpreted] And this is the CFO responding to your question about any changes to our mid- to long-term capacity operation plan, additional new plans or investment plan changes in response to the EV demand adjustments. Now again, I do appreciate your interest in this matter, and obviously, because these are the numbers that would point to the direction and the future shape of the company. So again, I do understand and also appreciate the high interest.
Now this year, we have 2 new projects scheduled for expansion, GM JV and Indonesian JV with Hyundai Motor. We are preparing for a stable mass production as planned, on schedule, and there are also projects that are scheduled to go into mass production from 2025. GM JV Phase 3 Stellantis JV, Honda JV and Hyundai North American JV as well as the company's own Michigan plant build up and the cylindrical plant and ESS plant in Arizona.
Now these projects will also move ahead as planned, but we will remain flexible and proactive as we keep closely monitoring the changes in the market environment and customer demand, when and where we see the need to adjust the pace, we will do so in close consultation with customers. So to sum up, overall, our investment strategy and plan as well as the direction remain largely unchanged. But whenever we see the need to moderate or adjust the pace, then we will do so with flexibility and pre-emptiveness.
[Interpreted] The next question will be presented by Cho Hyunryul from Samsung Securities.
[Interpreted] I also have a 2-part question. First is about the metal prices decline. So with the decline in the metal prices and the ASP decline, then I wonder when and until when and to what extent that default in the metal prices would be reflected? And the second question is about the IRA FEOC that had been announced, and I wonder whether there are any changes to the company's supply chain strategy based on this?
[Interpreted] Now this is [indiscernible] in-charge of Planning and Management responding to your question about how the decline in the metal prices would be reflected into the company's battery ASP. Now most of the company's contracts are structured to reflect changes in metal prices with a time lag. But when key metals like lithium and nickel are in steady decline, our battery ASP also declined. And in terms of profitability, because of this, then a lagging effect of raw material prices is expected until metal prices stabilized mostly because of the impact from the inventory.
We believe that the current price trend in key metals will have an impact on the downward trend of the company's battery prices through Q2 this year. But also at the same time, the downward trend will ultimately lead to strengthening of price competitiveness of our customers' EVs, which will be a positive factor in driving demand.
On the other hand, the structure of reflecting metal prices in the selling price minimizes the impact of long-term cost fluctuations and also minimize this impact and also helps secure a stable profitability.
[Interpreted] This is the CSO responding to your question about potential changes to our supply chain response strategy as a result of the IRA FEOC guideline. Now basically, the company's supply chain strategic direction is building a competitive dual supply chain in the U.S. and non-U.S. geographies. Now for the U.S. bound products, we are currently building optimum solutions with our materials partners in a location that will fulfill IRA FEOC. In non-U.S. regions, we are improving cost competitiveness and building up strength in supply readiness. Now we see our scale as a relative advantage in building a global supply chain.
And in terms of our preparation for the FEOC response, now I would like to say that we are very closely monitoring the overall situation and preparation is well underway as planned to respond to the FEOC as appropriately. And discussions are also ongoing with partners for local production of separators and electrolytes that require localization. And for critical minerals, we are strengthening our sourcing competitiveness in Korea, Indonesia, Australia and Chile to meet the IRA subsidy requirements.
[Interpreted] The next question will be presented by Kang Dong Jin from Hyundai Motor Securities.
[Interpreted] Now we see that in Europe, demand for EVs remains soft much longer than we had anticipated. And also the company's utilization in Poland is not very high to begin with. So I wonder how the company intends to respond to this sluggish demand in EVs in Europe?
And the second question is about the cylindrical batteries. Now especially from China, there is much fiercer competition regarding the company's major customers on the cylindrical battery front. And also because of logistics issues, the customer is also seeing some difficulties in the factory operations. So what does the company project in terms of the cylindrical battery demand? And how does the company intend to respond to these changes?
[Interpreted] Now I would respond to the question about the sluggish EV demand in Europe affecting the utilization in our Polish plant. And this is [ Kim Dong-Myung ] from the Automotive Planning and Management. Now following the adjustment of EV production volumes by customers in Europe, starting in the middle of last year, utilization rate and inventory level of the company's Poland plant were also downward adjusted from last quarter, which also affected our business performance.
But demand for EVs by major European customers is likely to see delay in recovery due to economic uncertainty and further subsidy reductions but we also believe that there is the possibility of demand improving when metal prices stabilize and when there is visibility into when battery prices will bottom out.
So to flexibly respond to external circumstances, as well as the uncertainties, the company will work to minimize the impact of volume reduction by improving line efficiency, adjusting resource input and cutting costs.
[Interpreted] And this is [indiscernible] from Mobility and IT Batteries, responding to the question about the intensifying competition in China, and also the EV cylindrical battery and also the [ 46.5 ] cylindricals. Now it is true that there are some risks to the EV cylindrical demand in the Chinese market coming from the relatively high EV penetration and intensifying competition. But we see that sales by our customers are on solid growth, demonstrating minimal impact throughout 2023. And now the company expects to further establish the demand basis for cylindricals with production of 46-Series cylindricals scheduled for the second half of the year. And it is also currently moving on schedule for mass production to begin in the second half of the year.
And also given the expectation of continued growth in cylindrical needs by other global OEMs, demand for our cylindrical battery is projected to start improving from the second half driving volume growth in 2024 Y-o-Y.
[Interpreted] The last question will be presented by Jeon Chang-hyun from Daishin Securities.
[Interpreted] My first question is on the CapEx plan and the financing plan for 2024. And the second question is about the ESS business. What is the company's outlook for the ESS business results?
[Interpreted] Thank you very much for your question. This is [ Seung Soo Han ] in charge of Finance and Accounting Group, responding to the question about the CapEx plan and the investment plan as well as the funding plan. Now CapEx in 2023 was around KRW 10.9 trillion, mainly going into new capacity in North America. In 2024, CapEx is expected at a similar level. And based on the estimation of the investment projects currently planned, CapEx is expected to start gradually decreasing from 2026.
And in terms of funding for our investment, we plan to prioritize the use of operating profit generated through our operations like sales each year. And then we would also utilize external financing appropriately. To elaborate a bit further on the external financing plan, the company successfully issued won-denominated and foreign currency-denominated corporate bonds in 2023 and we plan to raise investment resources based on this experience as well, meaning that we plan to issue corporate bonds.
And then also there is the long-term and low-interest policy finance that we have secured from the Department of Energy of the U.S. So these are some of the options that we will continue to review for the funding of the investment so as to maintain stable cash flow down the road.
[Interpreted] And this is [indiscernible] in-charge of ESS Battery Planning and Management responding to the question about the ESS business forecast. ESS market demand in 2024 is expected to sustain its strong growth of around 30% Y-o-Y, driven by the U.S. market. Solid demand is expected for the power grid in the U.S., thanks to the IRA policy. For residential, growth is expected, again, mostly led by the U.S. market. Now the company will keep responding actively in the U.S. market, which is our main market and especially for the power grid. And we will also try to secure a stable pipeline with -- by agreeing on large volume with the strategic customers so that we will also be able to sustain our profitability. Thank you.
[Interpreted] Thank you very much. And that brings us to the end of the LG Energy Solutions 2023 Q4 Earnings Release Conference Call. Thank you very much for your participation and attention.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]