2Q21 Review: Beats Consensus
The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed.
Upon completion of the LG-LX equity swap between major shareholders (the last step in separating LG-LX affiliates), LG Corp should be freed from undervaluation woes stemming from overhang concerns. Strengthening its new growth portfolio through investment in Kakao Mobility has begun. LG Corp shares are trading at a 69% discount to NAV.
Enjoying strong earnings momentum, anticipation for new businesses, and strengthened corporate ESG
LG Corp has been maintaining healthy earnings momentum for almost two years, backed by improvements at major affiliates such as LG Chem and LG Electronics (LGE). Restructuring for the purpose of strengthening major businesses has focused on an LG Energy Solution split-off, restructuring of LGE, and JV establishment. It is expected that new growth portfolios such as ESG (green tech), bio/digital healthcare, and deep tech will be enhanced after the separation of LG-LX affiliates is completed. LG Corp has recently invested W100bn (2.5% equity stake in Kakao Mobility). LG Energy Solution is expected to beef up its batteries-as-a-service (BAAS) business, and LGE is to further develop its battery charging solutions business for EVs.
By establishing an ESG committee under the BOD at its seven listed affiliates, including LG Corp itself, and setting up a corporate governance system and hiring female executives at three listed affiliates, the company is proactively addressing the spread of responsible investment and creating a foundation for sustainable growth. LG Corp also operates an outside advisory group for ESG consisting of experts and MZ-generation advisors.
2Q21 review: Beats consensus
LG Corp posted 2Q21 sales of W1.9tn (+30% y-y) and OP of W611.7bn (+75% y-y), with both figures beating consensus.
Leading the 2Q21 results were LG Chem’s largest-ever quarterly earnings, backed by robust one-off profits, including settlement money from a battery lawsuit with SK Innovation. LG U+ is maintaining strong growth thanks to wireless service sales increase driven by greater 5G penetration. Meeting consensus, LGE successfully offset cost expansion via sales growth for premium products. Unlisted subsidiaries also maintained strong earnings. LG CNS enjoyed profitability improvement on rapid sales increase from strong digital conversion demand and greater sales at high-tech businesses such as smart logistics and cloud (2Q21 OP: W56.2bn, +43% y-y). S&I Corporation also continued on a favorable growth track, backed by beefed-up investment in production facilities and a strengthened order backlog for building management (W20.2bn, +8% y-y).