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2018.7.29 |
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LG Chemical | |
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Closed at \374,500 (+0.54%) Target to \500,000 (+33.51%) | |
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Indices | |
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KOSPI200 297.78 (+0.28%) | |
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G 10y 2.571% (+0.049%) | |
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WTI $68.69 (-1.32%) | |
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USDKRW 1,118.1 (-0.11%) |
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1. Good performance with better environment. Specially, EV battery. The share-price had been directing to downside, targeting \300,000 with concerns over contraction of spread in the product manufacturing, and emergence of CATL, Chinese competitor, when Chinese government had given disadvantage to the company in their market. But the company overcome those concerns with performance. LG Chemical announced performance during 2Q18 at July 25, and satisfied the market. revenues and operating profits were KRW7.05tn and KRW703bn individually. The numbers were +10.5% and -3.2% in year-to-year. The market consensus for operating profit was KRW 698bn. It was unusual to rise by almost 10% just meeting the consensus. The point the market participants focused on was EV battery business. Orders on hand in EV battery increased by KRW18tn, from KRW42tn to KRW60tn. Unlike the Group’s peer LG Display (034220.KS), which are going through slump with the largest manufacture of LGD from Chinese competitors, the company is showing competitive advantage against its Chinese competitor, CATL. CATL is trying to defeat Japanese and Korean competitors by lowering their prices. But the Chinese technology is still behind their counterparts, and the subside from their government is decreasing continuously. The business isn’t generating appropriate profits yet, but analysts expect that the business will be making appropriate cashflow from 4Q this year. Analysts are wrong all the time, but the situation is very favorably estimated by the markets. |
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2. I believe skyrocketing Crude Oil will never happen. Let see business newspaper like Financial Times or Wall Street Journal. Every expert in every article is insisting that WTI and Brent will keep surging, and touch $100 in this year. But I don’t think so. Oils are fluctuating mostly based on geographical issues, nowadays. Many experts are pointing that under-investment on Oil drilling since 2014, which was caused by the plunge with over-supplement, and supplying side problems from Iran, Venezuela and Libya will lead to over-demanding for the world. Their suggestion has a point. Even though regional GDP growth during 2Q18 couldn’t meet expectation of Wall Street, macro economic situation of the US is good enough. With this, Mario Draghi, ECB president, is showing confidence in the zone’s economic growth. But dealers who are trading real oil don’t think so. They said “we don’t surprise at all even if the Oil go down by $10 right now. And movement of futures which couldn’t exceed and preserve $70s is supporting their argument. I still believe appropriate band for WTI is $60-70, and expect that the price will lean to $60 in near future. This will expand the spread for products of LG Chemical. |
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3. Concerns over trade-war will be solved in near future. US president Donald Trump and Jean Claude Juncker, EU commissioner, who is in charge of trade with US, make agreement to solve trade-war between the US and EU. I believe what some analysts think: Trump is trying to make better negotiation by threating Europe and China. Even though looks like he doesn’t know how to step back from threating the world, He is opening to negotiation about trading. I believe There is enough room for the world to buffer impact of the trade-war which started already. With this, USDKRW which exceeded 1,100, is also favorable to LG chemical which generate more than 60% of revenues in oversea, not Korea. It looks like USDKRW will not go lower than 1,100 considering increase of volatilities of global market. Overall trade environment isn’t that bad. |
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4. My target of stock price rises to \500,000. I raise my target price for the company from \450,000 to \500,000 based on favorable environment, and more-than-expected EV battery business. The most important point in the suggestion is price of Oil which has dominated the whole sector. |
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Mr. Banker, http://markety.tistory.com |
LG Chemical (July 29,2018).pdf