LS ELECTRIC
The author is an analyst for NH Investment & Securities. He can be reached at minjae.lee@nhqv.com -- Ed.
Power infrastructure earnings should stabilize thanks to greater investment in North America. The firm’s other divisions should also post steady margin growth. We expect 2Q23 earnings to beat consensus.
Stabilizing power infrastructure earnings to boost company-wide profit
We maintain a Buy rating on LS ELECTRIC and raise our TP to from W80,000 to W90,000, as we hike the 12-month EBITDA applied to the firm’s operating value by 27%. Of note, the discount applied to our TP is hiked from 25% to 30%, as uncertainties may rise in the mid/long term amid a decrease in new investment by domestic players in North America and a drop in demand due to the global economic slowdown. For reference, our TP is equivalent to a 2023 P/E of 12x.
With an order backlog of W2.2tn as of 1Q23, quarterly sales and OP at the power infrastructure division, which had been highly volatile, should stabilize above W250bn and W20bn, respectively, for the rest of 2023. Steady margin growth is likely for both the power equipment and automation divisions, and company-wide OP in 2023 is expected to rise significantly to W319bn (+70% y-y).
2Q23 earnings to improve
We forecast consolidated 2Q23 sales of W1.0tn (+14% y-y) and OP of W82.4bn (+37% y-y), exceeding consensus. The likely strong 2Q23 results are attributed to greater sales at the power infrastructure division and improved profitability at the power equipment and automation divisions. For reference, OP should reach W71.9bn (+64% y-y) on a separate basis and W10.5bn (-32% y-y) at consolidated subsidiaries.