How far has LG Energy Solution improved?

  • LG Energy Solution preliminarily reported third-quarter 2026 revenue of 9.226 trillion Korean won, up 62% year on year and 26% quarter on quarter. Operating results swung from a loss of 128 billion Korean won in the second quarter to a profit of 339 billion Korean won, with an operating margin of 3.7%. All figures exclude the US Advanced Manufacturing Production Credit, or AMPC, indicating that the improvement has occurred at the operating level beyond subsidies.
  • Gross margin, however, did not recover in tandem. Bernstein estimates third-quarter gross margin excluding AMPC at 16.9%, below approximately 18% in the second quarter and 25.4% a year earlier. The net loss attributable to the parent is estimated to have remained at 172 billion Korean won during the same period. There is still a gap between returning to an operating profit and achieving a final net profit.

Why did operating profit recover without a marked improvement in gross margin?

  • Bernstein attributes the key drivers to higher shipments and fixed-cost dilution. It estimates that LG Energy Solution shipped approximately 59 GWh in the third quarter, compared with 52 GWh in the second quarter. Capacity utilization rose from 58% to 66%, spreading fixed costs across more shipments.
  • The firm expects LG Energy Solution’s fourth-quarter revenue excluding AMPC to fall to 8.815 trillion Korean won, but gross margin to recover to 18%, operating profit to rise further to 465 billion Korean won and operating margin to reach 5.3%. Continued profit improvement therefore requires cost absorption and a recovery in gross margin, rather than relying solely on quarter-on-quarter revenue growth.

Where is Samsung SDI’s third-quarter outlook strongest?

  • Bernstein expects Samsung SDI’s third-quarter revenue excluding AMPC to be 4.23 trillion Korean won, up 39% year on year and 12% quarter on quarter. It forecasts operating profit of 170 billion Korean won, above the market consensus of 54 billion Korean won, corresponding to an operating margin of 4% versus consensus of 1.3%. The main difference from expectations lies in operating profitability.
  • Here too, not all profit measures are expected to rise together. Gross margin is forecast to fall from approximately 25% in the second quarter to 23.5%, while net income attributable to the parent excluding AMPC is expected to decline from 234 billion to 68 billion Korean won. The firm expects operating margin to rise further to 4.8% in the fourth quarter and full-year operating profit excluding AMPC to reach 266 billion Korean won, reversing the first-half loss of 139 billion Korean won.

How does energy storage demand reach the two companies’ production lines?

  • Under Bernstein’s US demand framework, electric-vehicle battery demand falls from 134 GWh in 2025 to 109 GWh in 2026. Energy storage demand rises from 42 GWh to 66 GWh, and data-center demand rises from 7 GWh to 27 GWh. The combined increases in the latter two are sufficient to offset the decline in EV demand.
  • The connection is more direct for Samsung SDI: Bernstein expects its 2026 energy storage shipments, including data centers, to rise from 12 GWh to 22 GWh, more than offsetting the decline in EV shipments from 29 GWh to 25 GWh. The US accounts for approximately 63% of total shipments. LG Energy Solution’s energy storage shipments are expected to rise from 15 GWh to 42 GWh, but the US accounts for approximately 22%, with a more diversified geographic and end-market mix.
  • Demand growth also comes alongside supply constraints: Bernstein expects total US battery demand in 2030 to be 486 GWh, while available capacity reaches 746 GWh. The investment thesis rests on changes in the energy storage mix and improvements in each company’s utilization, rather than an industry-wide capacity shortage.

Why retain Market-Perform ratings when the benefit is more concentrated?

  • According to Bernstein’s forecasts, Samsung SDI trades at 10.7 times 2027 EV/EBITDA, below LG Energy Solution’s 12.9 times, combining more concentrated exposure to US energy storage with a lower valuation. However, the firm believes both share prices already reflect a substantial earnings recovery. It raised their target prices to 560 thousand and 403 thousand Korean won, respectively, while retaining Market-Perform ratings.
  • Earnings revisions also diverge: LG Energy Solution’s 2027 earnings-per-share forecast was cut by 20% to 8177 Korean won, while Samsung SDI’s was raised by only 1.7% to 18889 Korean won. Both remain above market consensus; stronger revenue and recent operating performance have not resulted in broad upgrades to earnings forecasts across all periods.