Expecting Synergy Effects from IPTV-CATV Marriage
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
In 2020, LG HelloVision should prove synergy effects from the combining of IPTV and CATV businesses. However, earnings improvement stemming from such synergies is unlikely to appear until 2021.
Earnings improvement to appear gradually
We reaffirm a Hold rating on LG HelloVision, with a TP of W4,500. Incorporated as a subsidiary of LG U+, LG HelloVision conducts telecommunications media business under the umbrella of LG Group. We expect the company to enjoy a variety of synergies moving forward, including greater competitiveness in wired/wireless combined products, expanding mobile virtual network operator (MVNO) subscriber numbers, effects from the sharing of sales networks, and a reduction in call center and network costs. However, believing that it will take some time for such synergies to be reflected in the firm’s consolidated results, we look to earnings improvement from 2021.
2020 synergies to bring 2021 earnings improvement
We expect LG HelloVision to post 2020 sales of W1.06tn (-4.9% y-y) and OP of W26.1bn (-10.6% y-y). Following 2018 OP of W68bn and 2019 OP of W29.2bn (affected by a big bath prior to its merger in 4Q19), the company is likely to suffer earnings decline in 2020 due to restructuring related to networks and unfavorable subscriptions. After a variety of cost saving efforts are put into place this year, the firm should enjoy earnings improvement from 2021, backed by normalizing operations and robust synergies with LG U+.
1Q20 review: Reports weak earnings
LG HelloVision recorded 1Q20 sales of W258.9bn (-6.0% y-y, -6.8% q-q) and OP of W7.5bn (-42.5% y-y, +186.9% q-q), with OP falling well short of both our estimate of W10.7bn and the consensus of W10.3bn.
We believe that it is premature at this time to expect full-fledged synergy effects with LG U+. In addition, impacted by a drop in CATV subscriber numbers, sales growth proved sluggish.
However, the company’s CATV ARPU turned around from W7,322 in 4Q19 to W7,353 (-0.5% y-y, +1.2% q-q).