SK Biopharmaceuticals Preparing to List Shares by End-June

The authors are analysts of Shinhan Investment Corp. They can be reached at sh.kim@shinhan.com and jongseon@shinhan.com. -- Ed.

 

1Q20 results: LG Corp. beats consensus, CJ Corp. in line, SK Holdings swings negative

LG Corp.’s 1Q20 earnings exceeded market expectations by a wide margin, partly due to one-off gains from the sale of LG Twin Towers located in Beijing. LG Electronics, LG Chem and LG International sold their stakes in the property for an estimated KRW1.2tr. The proceeds drove up equity method gains (reflected in the holding company's consolidated sales) by 41.4% YoY to KRW533bn. Meanwhile, CJ Corp.’s earnings were in line with market consensus thanks to robust earnings from CJ CheilJedang, which contributes to 67% of total sales. SK Holdings, however, swung to a consolidated operating loss of KRW922.7bn with SK Innovation in the red due to oil price declines.

2Q20 outlook: Valuation discounts to narrow for SK Holdings and LG Corp.

We believe SK Holdings’s share price discount to NAV will narrow going forward, with: 1) cash inflows of KRW1.4tr expected from SK E&S’s sale of its stake in China Gas Holdings; and 2) SK Biopharmaceuticals (wholly-owned subsidiary) preparing to list shares by end-June this year for an IPO value around KRW4tr. LG Corp. also expects to see a cash inflow of roughly KRW1tr in 2Q20 from the sale of its 35% stake in LG CNS. The company will likely use most of the proceeds to provide necessary resources to core affiliates and to pay out dividends to shareholders.

Top picks:SK Holdings (short-term), Samsung C&T and LG Corp. (long-term)

SK Holdings is our sector top pick for the short-term as the company looks excessively undervalued at the current market cap of KRW14tr, given that the IPO value of its subsidiary SK Biopharmaceuticals is estimated at KRW4tr-5tr. Our long-term top picks are Samsung C&T, attractive for its transparent shareholder return policy, and LG Corp., backed by forecasts for an increase in dividend payments.

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