Net Cash Amounts to W1.8tn

The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com. -- Ed. 

 

The LG–LX separation has concluded. Moving ahead, we expect LG Corp’s business portfolio to strengthen through M&As and CVC establishment, backed by its net cash of W1.8tn. DPS is set to rise further on higher dividend income. LG Corp is currently trading at a 66% discount to NAV.

Expect strengthening of business portfolio, shareholder value, and ESG investment gains

With the LG–LX separation having wrapped up, LG is now expected to strengthen its business portfolio (which centers upon ESG, bio/digital healthcare, and deep tech) via M&As and CVC establishment, backed by its net cash of W1.8tn. Considering its strengthened ESG management system, the firm looks well situated to enjoy the fruits of its expanded ESG investment.

Despite a decrease in the number of subsidiaries due to the separation of affiliates, dividend income is projected to increase slightly in 2022 (W525.6bn, +1% y-y) on a rise in dividend payments by LG Chem and LG U+. Dividend income should further strengthen in 2023 on D&O (former S&I Corporation)’s disposals of equity stakes in subsidiaries (60% of S&I Atxpert for W364.3bn; 60% of S&I E&C for W290bn).

Given changes in share prices for listed subsidiaries, we lower our TP for LG Corp from W164,000 to W135,000. But, with the shares currently trading at 66% discount to NAV, we adhere to a Buy rating.

1Q21 review: LG CNS maintains solid sales growth and profitability

LG Corp’s 1Q22 results arrived below consensus, with the company announcing sales of W1.786tn (flat y-y) and OP of W828.3bn (-14% y-y).

Product spreads were dampened by rising commodity prices, but earnings for LG Chem’s profitable high-tech materials and battery division partially offset the effects of this deterioration. LG Electronics reported strong earnings, led by premium home appliance sales. Non-listed subsidiary LG CNS continues to show robust top-line growth (+17% y-y on sales) thanks to strong digitalization demand and its strength in smart-logistics. Despite higher SG&A related to IT human resources, LG CNS reported robust OP of W64.9bn (+19% y-y) and OPM of 7.3% (+0.1%p y-y). OP at D&O fell on the disposals of equity stakes in subsidiaries, but, based on its pre-stake disposal status, OP is believed to have turned to profit (W13.3bn) y-y in response to sales growth.
 

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