Too Early to Observe Synergies
The author is an analyst of NH Investment & Securities. He can be reached at jaemin.ahn@nhqv.com. -- Ed.
LG HelloVision has yet to show anticipated synergies with LG U+. The firm’s sales growth is being limited by deteriorating numbers of subscribers.
Too early to observe synergies
- We maintain a Hold rating on LG HelloVision. After being acquired by LG U+, LG HelloVision has yet to show any concrete related synergies, and CATV subscriber growth is structurally difficult to achieve.
- We expect synergies with LG U+ in areas such as expanding the competitiveness of wired/wireless bundled products, increasing the number of MVNO subscribers, utilizing distribution networks, and reducing call center and network costs. However, it will take more time for such synergy effects to present themselves in earnings. As the synergies have thus far not been ramping up as desired, there is a possibility of a merger with LG U+.
- Looking at 2021, we expect LG HelloVision to show sales of W1.06tn (+0.4% y-y) and OP of W45.3bn (+29.8% y-y). Although OP is situated to expand, sales growth will likely be limited as subscriber numbers at the CATV domain, the firm’s key business, are on the decline (3.81mn in 1Q21, -25,000 q-q).
- That said, we raise our EV/EBITDA valuation-based TP from W4,200 to W5,000 in light of a change in the base year for our TP calculations (2020 → 2021). We arrived at an EV of W392.5bn by applying a target EV/EBITDA of 3.5x to 2021E EBITDA of W231.7bn.
1Q21 review: Earnings satisfy expectations
- LG HelloVision posted 1Q21 sales of W257.2bn (-0.6% y-y, -3.0% q-q) and OP of W10.1bn (+35.7% y-y, +16.0% q-q), with OP meeting both our estimate of W9.7bn and consensus of W10.5bn. Sales at the TV business fell on a decreasing number of subscribers, but OP looks to be recovering in response to various cost reductions.