Ahead of IPO, S.Korea's LG Energy Solution flags market share, profit ambitions

LG Energy Solution's logo is pictured on a smartphone in front of the stock graph displayed in this illustration taken, December 4, 2021. REUTERS/Dado Ruvic/Illustration

SEOUL, Jan 10 (Reuters) - Days before pricing its $10.7 billion IPO, South Korean battery maker LG Energy Solution (LGES) forecast its market share would overtake main rival CATL thanks to its wider range of customers and said it was aiming for a double-digit operating margin.

LGES Chief Executive Officer Kwon Young Soo told reporters that he expected the company's market share to overtake that of Chinese rival Contemporary Amperex Technology Co Ltd (CATL) (300750.SZ), without specifying a time-frame, because it had a wider range of customers and CATL only currently operated factories in China.

Kwon also said the company aimed to achieve double-digit operating margins by reducing material and overhead costs -- addressing a profitability issue raised by institutional investors during the IPO roadshow, which kicked off last week. He did not specify by when LGES aimed to achieve this.

"We have a wider range of customers not only limited in China, but also in the United States as well as in Europe, while CATL's growth has been mostly backed by Chinese automakers," Kwon said at a news conference on Monday.

Analysts noted that ongoing U.S.-China trade tensions present challenges for Chinese battery makers hoping to expand their presence outside of the domestic market.

The news conference was held as LGES is preparing for an initial public offering this month and is expected to announce the pricing of its IPO this Friday.

LGES is LG Chem Ltd's (051910.KS) wholly owned battery subsidiary and supplies electric vehicle (EV) batteries to Tesla Inc (TSLA.O) and General Motors Co (GM.N) among others.

Last week, LGES opened the books to investors to raise up to $10.8 billion in the country's largest IPO, according to a term sheet seen by Reuters. read more

The IPO could take the company's value to as much as 70.2 trillion won ($58.47 billion), which would make it South Korea's third-biggest listed company after Samsung Electronics Co Ltd (005930.KS) and SK Hynix Inc (000660.KS). read more


Analysts have said LGES' "lower" profitability versus CATL could cast a shadow on the company's outlook.

LGES posted an operating margin of 5% during the January-September period last year, according to its third-quarter earnings results. CATL's operating margin was 15% over the same period, according to Refinitiv data.

"As CATL now only operates its factories in China, which has less expensive labour cost than in Poland and the United States, it has helped CATL achieve good profitability," said Kwon.

LGES' goal of achieving double-digit operating margins is "an ambitious target but not impossible," said Kang Dong-jin, an analyst at Hyundai Motor Securities.

"It's hard for manufacturers to reach double-digit margin, but CATL and other competitors are having trouble in nickel-based batteries, while (Swedish battery maker) Northvolt appears to be having quality issues. So (Korean) battery makers haven't completely lost their price competitiveness."

Asked about LGES' plans to develop cheaper lithium-iron-phosphate (LFP) batteries, Kwon said the company plans to adopt LFP batteries for electric vehicles, but did not give details, such as the production timeline.

LFP batteries, 95% of which are made in China, are considered cheaper and safer than nickel-based batteries, but have less energy density and need be recharged more often.

Tesla has said it plans to adopt LFP batteries in its fleet of standard-range vehicles globally. read more

In October, LGES said it plans to supply LFP batteries for energy storage systems (ESS).

($1 = 6.3723 Chinese yuan renminbi)

($1 = 1,197.6800 won)

Reporting by Heekyong Yang and Joyce Lee; Editing by Ana Nicolaci da Costa and Toby Chopra

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