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Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

In September, <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a> announced that it would split its Battery business (around 42% of total revenue) into a separate business. The plan was approved by a majority of shareholders on October 30th. By December 1st, the new battery business, tentatively named “LG Energy Solutions” will be formed.The second-largest shareholder - National Pension Service (NPS), with around a 10% stake, was against the split in business, citing a loss in shareholder value as a concern. Following the news, LG Chem’s share price dropped by about 6% during the day, however, the share price has recovered since then and has increased by 17.8% compared to the close on the 30th of October. We agree that the possible dilution in equity value should concern current shareholders. However, for the battery business as a whole, we feel that this is advantageous. The battery business will now receive the focus and attention it deserves, and given the current EV momentum, this could be the best strategy LG Chem could adopt to grow its battery business. During the first eight months of 2020, LG Chem also led the battery market, beating <a href="https://www.smartkarma.com/entities/contemporary-amperex-techn-a" target="_blank" data-smartkarma-citation="entities:24404:1" rel="noopener">CATL (A) (300750 CH)</a>, which held the leading position until 2019. We believe that this a good time to split the battery business and that this should allow the new business to grow strongly and closely compete with pure EV battery leader CATL.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/170/199/original/image_70601135821604899855622.png?1604899857" class="editor-image img-responsive" data-smartkarma-image-id="170199"></figure>We go through the details below.

In September, LG Chem Ltd (051910 KS) announced that it would split its Battery business (around 42% of total revenue) into a separate business. The plan was approved by a majority of shareholders on October 30th. By December 1st, the new battery business, tentatively named “LG Energy Solutions” will be formed.The second-largest shareholder - National Pension Service (NPS), with around a 10% stake, was against the split in business, citing a loss in shareholder value as a concern. Following the news, LG Chem’s share price dropped by about 6% during the day, however, the share price has recovered since then and has increased by 17.8% compared to the close on the 30th of October. We agree that the possible dilution in equity value should concern current shareholders. However, for the battery business as a whole, we feel that this is advantageous. The battery business will now receive the focus and attention it deserves, and given the current EV momentum, this could be the best strategy LG Chem could adopt to grow its battery business. During the first eight months of 2020, LG Chem also led the battery market, beating CATL (A) (300750 CH), which held the leading position until 2019. We believe that this a good time to split the battery business and that this should allow the new business to grow strongly and closely compete with pure EV battery leader CATL.We go through the details below.

Contemporary Amperex Technology (CATL) (300750 CH)

LG Chem Battery Business Becomes a Separate Entity