LG Sangsa Worse Than Its Subsidiaries... What Happened?

Panoramic view of the Oman Musandam gas-fired power plant, in which LG Corporation has invested a 30% stake

[Asia Economy Reporter Koh Hyung-kwang] The stock price of LG Corporation, a general trading company, has fallen to its lowest level since the global financial crisis in 2008. This is largely due to the continued deterioration in the performance of its resource sector. However, since it is undervalued to the extent that it does not even reflect the value of its subsidiary Pantos' equity, there is a high possibility of a rebound.

According to the Korea Exchange on the 3rd, LG Corporation closed at 12,100 KRW on the 31st of last month. It has fallen for five consecutive trading days recently, dropping 19.6% in just the past month. Compared to the peak of 19,450 KRW on May 3rd last year, it has slid by 38%. This is the lowest level since December 2008 (11,450 KRW) during the financial crisis.

LG Corporation's stock price soared vertically after overcoming the financial crisis, reaching 63,000 KRW in July 2011. However, as earnings stagnated, it began to decline and fell to the low 20,000 KRW range by the end of 2014. After acquiring the logistics company Beomhan Pantos in early 2015, the stock price gained momentum again, rising to 43,000 KRW, but due to the sluggish resource market, it has now fallen below the 20,000 KRW mark.

The decline in stock price is largely influenced by poor earnings. LG Corporation's operating profit peaked at 212.3 billion KRW in 2017, then gradually decreased to 165.7 billion KRW in 2018 and 134.7 billion KRW last year.

LG Corporation operates three major business divisions: resources, infrastructure, and logistics. In the past 2-3 years, the overall performance has deteriorated due to poor results in the resources and infrastructure sectors. The resources division, which posted nearly 80 billion KRW in operating profit in 2017, turned to a loss of 8.7 billion KRW last year, and the infrastructure division's operating profit, which exceeded 70 billion KRW in 2016, decreased to around 30 billion KRW last year. Although the logistics division's operating profit increased from about 75 billion KRW to 112 billion KRW last year, it was insufficient to offset the poor performance of the other divisions.

Experts expect a rebound as the logistics business continues to grow and new business development is actively pursued. Yoo Jae-sun, a researcher at Hana Financial Investment, said, "Logistics has recorded continuous external growth and stable profit margins based on existing affiliate volumes," adding, "This year, an increase in palm and coal production and trading volumes is also expected."

In particular, the fact that Pantos, a key logistics company within the LG Group, is a subsidiary was highly valued. LG Corporation holds a 51% stake in Pantos as the largest shareholder. Ryu Je-hyun, a researcher at Mirae Asset Daewoo, said, "Considering last year's earnings estimates, Pantos' corporate value is expected to comfortably exceed 1 trillion KRW," and added, "LG Corporation's current price-to-book ratio (PBR) is 0.4 times, and its market capitalization is about 450 billion KRW, which means LG Corporation is undervalued to the extent that its current market cap does not even reflect the value of its stake in its subsidiary Pantos (about 500 billion KRW)." He added, "If Pantos' listing is actively promoted, the stock price of the parent company LG Corporation will also be re-evaluated."

This content was produced with the assistance of AI translation services.