Scheduled to Be Listed on May 27 Following Spin-off
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
On May 27, LG Corp is scheduled to be listed after its spin-off. The separating off of affiliates is to be completed within this year via share swaps between major shareholders. Restructuring to strengthen flagship businesses has already begun. Moving ahead, we expect LG Corp to marshal its abundant liquidity to strengthen shareholders’ value and its new business portfolio. The shares are currently trading at a 58% discount to NAV.
Scheduled to be listed on May 27 following spin-off
Following a one-month trading suspension, LG Corp is scheduled to be relisted after its spin-off (91:9 ratio). The firm will begin trading again at a share price of W126,500, which is the price just before trading was suspended and also its record high. Major price volatility is unlikely as the Kospi fell just 0.4% during the suspension period, and valuation fluctuations due to the spin-off (55.4% discount to NAV → 58.1% discount to NAV) stand at only 2.7%.
The reason for the change in valuation is that while investments in related companies and JVs are separated based on book value, listed subsidiaries are evaluated based on market value when calculating NAV. In fact, the P/B multiple for listed subsidiaries at the remaining holding company (6.6x) is higher than that for listed subsidiaries at the new holding company (2.0x).
Still has room to grow
LG’s net cash fell 10.3% to W1.5tn after the spin-off, but its dividend policy should remain intact thanks to its stable cash flow—its dividend income ratio (92.4%) will likely come in similar to the spin-off ratio, while brand royalty income ratio (96.2%) should come in higher. We also note that restructuring is already underway to strengthen the group’s core domains including its chemical and electronics businesses, and efforts are likely to be beefed up to develop new growth drivers such as ESG (Green Tech), bio/digital healthcare, and deep tech.
The group has also preemptively responded to the spread of responsible investment and laid the foundation for sustainable growth by establishing ESG committees under the BODs at seven listed affiliates (including LG Corp) and appointing female executives at three listed affiliates.