MC Reorganization Underway
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Target price held at KRW22,000; MC reorganization underway
We maintain our 12m TP of KRW220,000 for LGE. We continue to favor the company as our sector top pick given that: (1) 1Q21E OP of KRW1.5tn is above the market consensus of KRW1.1tn; and (2) the reorganization of MC in 1H21 is expected to reduce uncertainties.
Excluding MC losses, 1Q21E OP comes in at KRW1.8tn, with 2021E OP totaling KRW4.8tn (vs. KRW3.8tn including MC). In short, the MC reorganization should have a significant impact on LGE’s earnings and stock price.
1Q21 forecast: OP to surprise at record high of KRW1.5tn
We revise up 1Q21E OP by 36%, from KRW1.1tn to a record-high KRW1.5tn (+129% QoQ/+36% YoY). The jump should be fueled by strong performance at H&A and HE as electronics demand shifts from household electronics to high-end home appliances and ultra-large TVs in the wake of COVID-19 vaccinations in North America and Europe.
Stock rally expected regardless of reorganization of MC
LGE stock dropped 18% to KRW144,500 on Mar 9 from its previous peak of KRW176,000 on Feb 17 because of concerns that: (1) the reorganization of MC will involve additional losses; and (2) demand for home appliances and TVs will shrink after COVID-19 vaccinations are widely distributed. In contrast, we believe that the reorganization will boost company-wide earnings and COVID-19 vaccinations will increase customer traffic in stores, boosting sales of high-end products. LGE’s enterprise value has the potential to climb at least KRW10tn once the reorganization is completed in 1H21 and VS enters positive territory in 2H21.