LG Energy Solution Earnings: Near-Term Growth Guided to Slow on Reduced EV Demand Outlook

December-quarter revenue and operating profit for no-moat LG Energy Solution, or LGES, were both weaker than we expected. Management attributed the fourth-quarter revenue drop to key auto customers’ inventory destocking and decline in battery price, due to a prolonged lithium price drop. We lower our 2024-26 revenue estimates by 2%-10% due to a reduced outlook for electric vehicle, or EV, power battery demand. To factor in a prolonged margin weakness in EV battery sales, we cut our 2024-26 operating income forecasts by 5%-15%. We lower our fair value estimate to KRW 366,700 from KRW 369,100, which corresponds to 41 times P/E and 16 times EV/EBITDA on a 2024 basis.