The author is an analyst for NH Investment & Securities. He can be reached at minjae.lee@nhqv.com -- Ed.
We expect LS ELECTRIC’s 3Q23 OP to miss consensus due to reduced investment in the semicon industry and fewer business days. However, with the business environment set to normalize over the mid/long term, profitability should remain intact.
Mid/long-term profit strength to be maintained
We maintain a Buy rating on LS ELECTRIC, but lower our TP from W140,000 to W120,000. We maintain Buy, as semicon investment is slowly normalizing and profit levels at the power infrastructure division remain steady. Our TP is lowered to reflect: 1) reduced automation sales (-5% y-y), following a drop in semicon investment in 2H23; and 2) decreased sales at the Chinese subsidiary (-7% y-y).
With order backlog at the power infrastructure business having already exceeded W1.8tn as of 2Q23, stable profit levels are anticipated. In addition, supply-dominant market conditions should sustain as, due to the nature of the industry, active facility investment does not always follow hikes in demand. Of note, supply-demand conditions are tight enough that industry players are discussing supply volume with clients for 2026 and 2027, and facility utilization rates exceed 80%. Therefore, despite the dip in profits due to economic slowdown, annual OP should remain around W300bn.
3Q23 preview: Taking a breather
LS ELECTRIC’s consolidated 3Q23 earnings are likely to miss consensus, with sales of W1.1tn (+31% y-y) and OP of W75.7bn (+25% y-y). Earnings should decline q-q due to reduced semicon investment, fewer business days, and lighter sales at the Chinese subsidiary. The stock is trading at a 2023E P/E of 11x.