[Click eStock] "LG, Excessive Stock Price Decline After Split... Target Price Down"

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] KB Securities evaluated that the stock price decline of LG after the split is excessive and lowered the target price from the previous 150,000 KRW to 130,000 KRW on the 14th. The investment opinion was maintained as 'Buy.'

Jung Dongik, a researcher at KB Securities, explained, "Reflecting changes in earnings estimates, beta, risk-free rate, and other assumptions affecting the cost of equity, the target price was lowered by 13.3%. Despite the target price adjustment, there is still a 30% upside potential compared to the previous closing price, so the investment opinion remains a buy."

He expressed the view that the stock price decline after the split is excessive. Currently, LG's market capitalization is at 72.1% compared to April 28, before the trading suspension related to the split. Even when combining the market capitalization of the split LX Holdings, it amounts to 16.6 trillion KRW, which is only 75.9% of the 21.8 trillion KRW before the split. Researcher Jung analyzed, "Considering that the KOSPI index rose by 2.8% during the same period, LG underperformed the index by 26.2%. Such a stock price decline occurring without any particular negative factors is excessive."

The stock price decline has increased valuation and dividend investment merits. Researcher Jung said, "Due to the stock price decline after trading resumed, the price-to-book ratio (PBR) based on this year's expected earnings fell to 0.7 times, and the dividend yield rose to 2.8%, significantly enhancing valuation and dividend investment merits. Although uncertainties such as the poor stock performance of some affiliates and expected share exchanges between major shareholders of LG Group and LX Group have triggered the stock price decline, these concerns are judged to be sufficiently reflected in the current stock price."

There is also a forecast that the second-quarter earnings will be favorable. KB Securities estimates LG's consolidated sales for the second quarter to increase by 25.7% year-on-year to 1.8795 trillion KRW, and operating profit to rise by 66.7% to 598.7 billion KRW, exceeding market consensus. Researcher Jung explained, "LG Electronics, which has already announced preliminary earnings, recorded solid results in line with consensus. The earnings of consolidated subsidiaries such as LG CNS and S&I Corporation are also expected to continue a favorable trend in the second quarter following the first quarter, driven by increased business in smart logistics, cloud transition and construction, and expanded domestic and overseas facility investments by affiliates."

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