LG Energy Solution stock sells well despite market volatility

Customers at Shinhan Investment's Yeongdeungpo District branch on Wednesday subscribe to LG Energy Solution's initial public offering. [NEWS1]

Despite turmoil in the markets and the weakness of electric vehicle (EV) maker stocks, retail investors enthusiastically participated in the initial public offering (IPO) of LG Energy Solution.

The two-day sale of 11 million shares to individuals was 69 times oversubscibed, according to KB Securities Wednesday. The institutional offering last week was oversubscibed 2,023 times.

Heavy interest comes as the demand for growth and technology stocks in general has been hit hard with interest rate increases imminent.

The Nasdaq Composite Index is down 8 percent from its peak, and EV-related shares are being aggressively sold. Rivian fell 8.49 percent on Tuesday, while Tesla also dropped and is down about 20 percent from its all-time high.

LG Energy Solution's IPO also comes after a year of disappointing initial public offerings in Korea, with many hyped shares performing poorly after listing, and despite the company being caught up in a major recall.

In August 2021, General Motors announced a massive recall of Chevy Bolts due to battery fires in vehicles with LG Energy Solution batteries installed.

LG Energy Solution, a wholly-owned subsidiary of LG Chem, is selling a total of 42.5 million shares in the offering, which is expected to raise 12.75 trillion won.

It will start trading on the Korea Exchange on Jan. 27.

With the shares priced at 300,000 won ($250) each, the company will have a market capitalization of 70.2 trillion won, making it the third largest company in Korea by market capitalization out of the gate and priced at about 87 times earnings, according to analysts.

The newly raised funds will be used to expand manufacturing facilities, the company has said.

Analysts are positive on the prospects for the company, arguing that No. 1 Contemporary Amperex Technology (CATL) should be used as a comparable. CATL has 29 percent of the global EV battery market and LG Energy Solution 22 percent.

"Its market capitalization is expected to reach 122 trillion won as it continues on with its partnerships and joint ventures with global carmakers including General Motors, Stellantis and Honda, although it is uncertain at the moment," said Hwang Sung-hyun, analyst at Shinhan Investment.

"Considering the limited retail volume of the shares after the IPO as well as a premium attached to the fact that the company is purely dedicated to the battery business, expectations for 2025 will swiftly reflect in the share price when most of the facilities investment promised by the company will be completed."

IBK Securities also forecast further growth in LG Energy Solution's market capitalization and went to great lengths to distinguish it from the poor performers of 2021.

"LG Energy Solution's IPO differs from last year's IPOs, such as KakaoBank and Krafton, because it has more room to grow," the investment company wrote in a report issued Wednesday.

"KakaoBank was deemed to be overvalued when it debuted at the time, and Krafton was considered a game producer of a one-hit-wonder. LG Energy Solution has the possibility to be reevalued because there is awareness that its market cap is low compared to global No. 1 battery maker CATL, which has market cap of 250 trillion won."

Shares of Krafton, producer "Player UnKnown's Battlegrounds," are down 34 percent from the 2021 offering price. Kakao Bank is being traded at about 41,800 won per share compared to its offering price of 39,000 won.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]