Positive buy-reports of LG Chem fail to persuade angry retail investors

By Anna J. Park

Since LG Chem announced its plan to spin off its lucrative battery unit by December this year, its stock price has continued to fall. The company's shares finished at 627,000 won ($541) at Monday's closing, which is a 5.86 percent drop from last Friday's closing price.

After LG's announcement last Wednesday of the battery business separation plan, LG Chem shares immediately fell, closing at 687,000 won the same day, a drop of 5.37 percent from the previous day's figure of 726,000 won.

The firm tried to assuage angry investors stressing that it would retain 70 percent of the newly created battery affiliate, named “LG Energy Solution” ― yet the explanation fell short of persuading investors to lock in the shares. So far, the company's shares have plunged by 13.39 percent in just four trading sessions since the news broke out.

Some disappointed retail investors filed petitions on the official website of Cheong Wa Dae.

“Most retail investors in Korea purchased LG Chem shares on the grounds of the company's main business in electric vehicle (EV) batteries, which is part of a key focus of the Moon administration's Korean New Deal initiative,” the petition stated.

“With the company's spinoff, it has turned out that we made an investment into a chemical company, which is not at all why we purchased the shares. The losses we have faced cannot be compensated anywhere.”

Conflicting actions of securities firms

Since the spinoff news broke, many securities firms raised LG Chem's target price, with Shinhan Financial Investment and Yuanta Securities & Investment increasing the price to 950,000 won per ordinary share and Mirae Asset Daewoo raising it as high as 1,050,000 won. Of 22 reports published recently by securities firms, 16 suggested an 'overweight' view of LG Chem stocks.

“LG Chem announced that by the spinoff, it aims to build a more efficient management system for battery units, as well as to expand focused businesses on the chemical, advanced materials and bio sectors,” a recent report by Shinyoung Securities stated. “The corporate value will likely increase further even after the IPO of LG Energy Solution.”

However, contrary to such reports, most institutional investors including securities firms and asset managers net sold some 265,000 shares of LG Chem, which were kept as the financial firms' own assets, during the three trading sessions from last Wednesday to Friday. The transactional amount exceeded 20.4 billion won, which turned out to be the fourth-biggest net-sold stock by local financial institutions during the period, excluding ETFs.

“If the spinoff is such a boon for the company's long-term values as the reports wrote, why don't they net-buy the shares?” a retail investor critically wrote in an online bulletin board.

Regarding such criticisms, market insiders say it is still hard for stock analysts to publish completely free opinions about the nation's major conglomerates due to their corporate relationships with them.

LG Chem competitor's stock price surges

Meanwhile, the company's main competitor SK Innovation, another high-end global battery supplier headquartered in Korea, is enjoying an increase in its stock prices. On Monday, its stocks rose to 157,500 won, a 2.94 percent jump from Friday's closing.

The two battery manufacturers have been mired in a series of intellectual property infringement lawsuits in both Korea and in the U.S. The first trial in Korea ended with a win for LG Chem late last month, yet it is expected that the two firms will soon reach a deal outside the court to save on trial fees as well as to allow LG Chem to focus on its slated spin-off.

Market analysts attribute the stock's upward trend to positive expectations of the possible resolution of legal disputes as well as its shares' relative undervalued position among the country's major battery companies.

“SK Innovation is considered a latecomer among the nation's main battery manufacturers, yet it plans to aggressively expand its battery production to 20 GWh by 2020, 70 GWh by 2023 and 100 GWh by 2025,” said Han Sang-won, a battery analyst at Daishin Securities. “The stock is currently undervalued due to general distrust about latecomers and uncertainties about the legal disputes. Yet if such uncertainties are solved, investors could expect to see a jump in stock prices.”