P/E, P/B at record low levels
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
Maintain BUY but lower target price to KRW17,500
We lower our TP by 7.9% to KRW17,500 on LGU. We attribute the stock’s sluggish performance to lower-than-expected earnings amid one-off expenses in 1H22. However, we maintain BUY given (1) B2B earnings are likely to increase in full swing and (2) the market for wireless B2C is stabilizing. We forecast 2023 revenue at KRW15.7tn (+9.6% YoY) and OP at KRW1.16tn (+13.5% YoY).
P/E, P/B at record low levels
LGU’s valuation is at record low levels (7.0x P/E, 0.7x P/B). The stock has lost ground, as earnings fell short of expectations with Handset operating loss of KRW22.0bn in 1Q22 and one-off expenses of KRW45.0bn in 2Q22 (voluntary retirement program). However, full-year OP of KRW1.0tn seems attainable.
U+3.0 aims to boost ARPU
LG Uplus’ U+3.0 strategy unveiled in September is aimed at increasing the proportion of non-telecom revenue to 30% by 2025 via more digital engagement with customers and greater data-based customer understanding. Non-telecom businesses include subscription service Udok and everyday services. These efforts are in line with current trends in the wireless telecom market, where boosting ARPU is critical. We expect LGU ARPU to rise as premium rate schemes with additional services increase no. of subscribers.
IDC to contribute more to overall revenue growth
LGU’s hyperscale IDC (Pyeongchon No. 2 Center), of which investments began in 2021, is scheduled to be completed in 3Q23 and generate revenue from 2H23. With capacity of 20MW, it will increase total IDC capacity by more than 10%. This should benefit LGU amid growing demand, as datacenter users are increasingly using multiple backup centers.