LS Holdings
The author is an analyst for NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com -- Ed.
LS Holdings’ earnings momentum is being spurred by the consolidation of LS MnM earnings. The firm is beefing up its portfolio by expanding capacity and increasing stakes in subsidiaries. Moreover, shareholder value is set to strengthen. The stock is trading at a 52% discount to NAV.
Growth continues
LS Holdings' OP is expected to grow by 40% to W904.3bn in 2023. As copper prices rise, the business environment for subsidiaries, which use copper as a raw material, is improving. LS Cable & System's earnings are positive thanks to an increase in the sales portion for the high value-added power cable business and the expansion of submarine cable facilities. LS MnM's increased sales portion of precious metals and by-products and greater production of high-pure sulfuric acid (PSA) are also expected to contribute to earnings at LS Holdings.
Having acquired the remaining 49.9% stake in LS MnM from JKJS, LS Holdings now wholly owns the firm. In addition to receiving an earnings boost from the consolidation of LS MnM’s earnings, we expect to witness speedy decision making for new businesses and the increased possibility of an IPO for LS MnM. Also, LS Holdings' cash flow (dividend income, brand royalties) should level up from W150.3bn in 2022 to W261.7bn in 2023, on the expansion of its stake in LS MnM, which is the largest contributor to dividend income. As a result, LS Holdings is expected to strengthen investment and enhance shareholder value.
1Q23 review: Despite reduced production at LS MnM due to regular maintenance, earnings strengthen
LS Holdings reported 1Q23 sales of W6,098.5bn (+64% y-y) and OP of W238.2bn (+42% y-y). The consolidation of LS MnM earnings, which began in 4Q22, had a significant impact on earnings.
Amid a positive environment with a rebound in copper prices (+12% q-q), OPM at LS Cable & System (OP of W60.1bn, +23% y-y) returned to 4% thanks to increased sales from extra-high voltage and submarine cable projects. LS I&D (OP of W38.1bn, +73% y-y) also showed strong earnings on greater demand for optical communication cables in North America and increased orders for EV windings. LS Mtron (OP of W22.3bn, +14% y-y) reported solid earnings amid peak seasonality in the domestic tractor market and tractor price hikes in Brazil. However, LS MnM's earnings (OP of W26.2bn, -77% y-y) were weak due to regular maintenance work that lasted a month. We expect the firm’s earnings to normalize from 2Q23.