Copper Price Reaches Highest Point since 2012
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
The copper price, which tends to be highly correlated with LS Holdings’ share price, is continuing strong. Going forward, we expect the firm’s earnings growth to be led by both copper price hikes and mid/long-term benefits from the sale of submarine cables at LS C&S (in accordance with the government’s plan to expand offshore wind power). LS Holdings’ shares are currently trading at a 53% discount to NAV.
Copper price → earnings → share price
Representing a major determinant of LS Holdings’ earnings, the copper price has reached its highest point since 2012. Accordingly, earnings at affiliates (major raw material: copper) are also improving rapidly. We see 2021F OP of W528.4bn (+17% y-y) on: 1) the government’s plans to expand offshore wind power in line with Korea’s Green New Deal; 2) the completion of the firm’s new plant in Donghae (plant #2), which should help it keep pace with strong overseas demand; and 3) the establishment of a JV for EV cables between LS I&D and Japan’s Furukawa Electric.
Maintaining a Buy rating, we raise TP from W72,000 to W93,000, reflecting a change in the share price of a listed affiliate, earnings estimates adjustments for unlisted affiliates in response to a strong copper price, an increase in our applied target P/B multiple (0.9x → 1.1x), and a cut in our discount rate (45% → 40%). LS Holdings’ shares are currently trading at a 53% discount to NAV. Amid booming stock market conditions, expectations are strengthening that sub-subsidiary LS EV Korea will be listed.
4Q20 preview: To show solid earnings on strong copper price
We expect LS Holdings to book consensus-beating 4Q20 sales of W2.76tn (+2% y-y) and OP of W141.9bn (+331% y-y).
Despite a lower won/dollar rate (-1% q-q, -6% y-y), 4Q20 market conditions were favorable for LS Holdings, as the copper price (+10% q-q, +22% y-y based on average price) continued strong. LS Cable & System’s earnings should prove robust (4Q20E OP of W51.3bn, +35% y-y) on both steady brisk orders for HV cables and a recognition of delayed sales. Helped by a strong copper price and likely solid by-product sales, LS I&D and LS Nikko Copper should book solid OP of W26.0bn (+242% y-y) and W84.6bn (-1% y-y), respectively. But, LS Mtron’s OP was likely held to 0.8bn (TTP y-y) on off-seasonality effects.
For 1Q21, we forecast solid overall OP of W128.6bn (+37% y-y), drawing attention to an ongoing favorable copper price since the beginning of the year.