LG Energy faces reality check as its stock turns a market laggard

South Korean battery maker LG Energy Solution Ltd. was touted as a market darling even before its Kospi debut last month, reflecting the investor frenzy for all things EV across the globe.

When the company received orders from retail investors for new shares up for sale in mid-January, it set a record for initial public offering demand, with nearly one in every 10 Koreans rushing to the brokerages handling the IPO to subscribe or submitting bids online.

Even during the bookbuilding process conducted a week earlier to gauge interest from institutional investors, the company set a record with bids worth a whopping 11,500 trillion won, or $9.65 trillion, from more than 1,700 institutions.

Upon listing on Korea’s main bourse on Jan. 27 with great fanfare, however, the stock has steadily fallen except for only seven sessions, as foreign and retail investors dumped their holdings to book earlier gains.

LG Energy, the world’s second-largest electric vehicle battery maker, made a stellar trading debut with its share opening at 597,000 won, nearly double its IPO price of 300,000 won, before closing the first day down 15.4%.

Despite its first-day slide, the company instantly ascended to rank the second-most valuable stock on the Kospi with its market capitalization of 118 trillion won ($98 billion), after the country’s top stock, Samsung Electronics Co.

More recently, LG Energy’s shares came under pressure amid a broader market decline, with investors engaging in panic selling on Russia’s military attack on Ukraine.

Having fallen for a protracted period, with its market cap slipping below the psychologically important 100 trillion won level, the stock has now become one of Korea’s major laggards.

As of midday on Friday, LG Energy was up 1% at 420,500 won, reducing its enterprise value to 98.4 trillion won ($81.8 billion).

BELATED REALITY CHECK

Analysts said behind the heavy selling is investors’ belated reality check that the stock may have been overvalued.

When LG’s IPO managers assessed the value of the company before the share sale, they compared its value with that of China’s Contemporary Amperex Technology Co. Ltd. (CATL), the EV battery market leader.

CATL’s market cap at the time of LG Energy’s listing was about 283 trillion won, with its ratio of enterprise value versus earnings before interest, taxes, depreciation and amortization, or EV/EBITDA, standing at 80.7.

CATL’s market cap has since dwindled to around 220 trillion won, with its EV/EBITDA multiple down to 68.9, meaning LG Energy’s shares have room for a further decline, analysts said.

Almost all local brokerages offer a Buy rating for LG Energy, but their target prices average around 531,600 won, with SK Securities Co. most pessimistic with its target price at 430,000 won.

“Recent data showed Volkswagen’s EV sales are falling behind market expectations, which could lead to weaker battery sales for LG Energy,” said Samsung Securities analyst Cho Hyun-ryul.

LG counts General Motors Co., Tesla Inc. and Volkswagen among others as its major global clients.

Write to Yun-Sang Ko at kys@hankyung.com
In-Soo Nam edited this article.