[Click eStock] "LG, Subsidiary Stock Price Slumps... Target Price Down 10%"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating on LG on the 3rd and set a target price of 125,000 KRW, down 10.7% from the previous target. This is because the prolonged weakness in the stock prices of major listed subsidiaries is expected.

LG's stock price has shown a trend linked to LG Chem and LG Electronics as a pure holding company. Since the spin-off of LX Holdings in May last year, the stock price decline has intensified. In December, the share exchange between major shareholders of LG and LX was completed, effectively finalizing the separation of the affiliates, but the market capitalization decline continues.

Jungwook Choi, a researcher at Hana Financial Investment, explained, “The outbreak of the Ukraine war is expected to have a negative impact on the fundamentals of listed companies such as LG Chem,” adding, “Although the discount rate compared to the actual NAV reaches 68.7%, indicating clear undervaluation, the weakening investment sentiment is expected to continue.”

The timing of a stock price rebound for major listed companies depends on the resolution of supply issues for automotive semiconductor chips. However, in the case of LG Chem, the recent rise in crude oil prices has caused a sharp increase in naphtha prices, increasing cost burdens, so a short-term stock price rise is unlikely to proceed smoothly. Additionally, LG Energy Solution, which has a high sales proportion to Europe, is expected to see profitability deteriorate due to stagnation in electric vehicle battery shipments and increased fixed costs. Furthermore, the war in Russia is expected to inevitably cause a rise in global nickel prices, exacerbating difficulties.

Researcher Choi analyzed, “LG Electronics’ sales proportion to Russia is less than 4%, so the negative impact is limited, but demand for home appliances and TVs is slowing down, and cost burdens such as rising raw material prices are likely to expand,” adding, “There is not much stock price momentum from the listed subsidiaries.”

However, the possibility of increased dividend income through IPOs of subsidiaries is positive. Among unlisted subsidiaries, LG CNS, which has a book value of about 200 billion KRW, is expected to be revalued as the top player in smart logistics upon IPO (initial public offering). Additionally, S&I Corporation is scheduled to secure about 654.3 billion KRW in cash through the disposal of controlling stakes in its business subsidiaries S&I Expert and S&I Construction, which is likely to increase LG’s dividend income. Researcher Choi added, “Dividends are positive for securing resources to discover new businesses for the group.”

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