Korea’s EV battery trio, led by LG Chem, emerge as market’s top picks

South Korea’s three electric-vehicle battery makers have become the local market’s top picks as their combined market capitalization nearly tripled in less than five months amid the coronavirus-caused economic slowdown.

Analysts say LG Chem Ltd., Samsung SDI Co. and SK Innovation Co. have now emerged as the country’s leading shares alongside chipmakers such as Samsung Electronics Co., driving the market out of a slump.

Shares of the three rechargeable battery makers have been hitting fresh record-highs in recent sessions on aggressive purchasing by investors on expectations for higher demand from automakers for use in electric vehicles once the global economy recovers from the COVID-19 lockdown.



SHARES AT RECORD HIGH

LG Chem, now the fifth-largest cap on the main Kospi market, rose for a sixth straight session on Thursday to close at an all-time high of 680,000 won. Samsung SDI ended up 0.3% at a record 469,5000 won, while SK Innovation finished 2.8% higher at 163,5000 won after rising as much as 20.5% the previous day. The EV battery trio helped push the Korean equities market to end at the highest level in nearly two years.

The combined market capitalization of the three companies topped over 94 trillion won – nearly three times more than 34.12 trillion won on March 19, when the Kospi fell to the yearly low on fears of the coronavirus pandemic.

Their recent stellar performance has helped the Korean battery makers surpass in terms of market capitalization China’s Contemporary Amperex Technology Co. (CATL), a leading global EV battery maker, whose market value stood at 80 trillion won.

Given that the three Korean battery makers remain the darling of the market, their share-price gap with the Chinese company will likely widen further as CATL is under pressure following the Chinese government's move to cut state subsidies.

“Up until last year, foreign investors doubted Korean EV battery makers’ growth potential. But the Korean firms are proving that they are the country’s growth stocks,” said Lee Chang-mok, head of research at NH Investment & Securities. “The Korean companies, which followed their Chinese rivals, are now leading them.”

The Korean companies are also expanding their influence in the global EV battery market.

LG Chem became the largest supplier of EV batteries in the first half, followed by China’s CATL. Samsung SDI and SK Innovation came in fourth and sixth place, respectively.

According to SNE Research, the combined market share of the three Korean companies more than doubled to 34.6% in the first half of the year, an impressive jump from last year’s 15.7%.

LG Chem, the chemical arm of LG Group, started its battery business in 1992 and supplies its battery cells to global EV makers such as Tesla, Volkswagen, GM and Hyundai Motor.

UPSIDE POTENTIAL

Analysts see a further upside potential for the Korean companies as LG has begun to make profit from its battery business from the second quarter and Samsung SDI and SK Innovation are also forecast to turn to profit in the coming quarters.

LG Chem posted an earnings surprise last week as its battery business swung to 155.5 billion won in operating profit in the second quarter.

Shares of LG’s two local rivals, Samsung SDI and SK Innovation, were under pressure as their EV battery business has  yet to reach a break-even point; they have so far been focused on expanding their production capacities in preparation for a ‘battery chicken game’ in the future rather than generating profits.

“Samsung SDI is expected to turn to profit in the fourth quarter at the earliest, helped by improving operating margins from its mid-to-large size battery business,” said Koh Jung-woo, an analyst at NH Investment & Securities.

SK Innovation, basically an oil refining company and a latecomer to the EV battery market, is widely forecast to reach a break-even point in late 2021.

According to the latest public disclosure data, LG Chem’s battery business accounted for 31.8% of the company’s total revenue of 7.11 trillion won at the end of the first quarter. Foreign investors currently own 37.3% of the company.

Samsung SDI, which gets 75% of its revenue from its EV battery business, is 42.8% owned by foreigners.

Data show SK Innovation’s battery business accounted for a mere 3% of its total revenue at the end of March. The bulk of its revenue comes from the petroleum refining business. Foreign investors own 24.3% of the company.

Write to Yang Byeong-Hun at hun@hankyung.com