[Click e-Stock] "Lotte Innovate Enters Recovery Phase... Target Price Raised"

On August 12, Shinhan Investment & Securities stated that Lotte Innovate has entered a recovery phase in both performance and stock price, driven by growth in its data center, electric vehicle charging, and artificial intelligence (AI) service businesses. The firm raised its target price to 31,000 won and maintained its 'buy' rating.

Lotte Innovate's operating profit for the second quarter of this year was 8 billion won, a 37% increase compared to the same period last year, surpassing estimates. Data center sales continued to grow, and the occupancy rate of its four centers is projected to rise from 51% in 2023 to 70% this year. Subsidiary EVSIS (electric vehicle charging) saw its revenue increase by 31% quarter-on-quarter, driving the improvement in results. The operating profit margin was 2.9%, up 0.9 percentage points year-on-year and 0.5 percentage points quarter-on-quarter.

Previously, growth was mainly driven by the stable expansion of data centers and the recovery of subsidiary performance. However, the launch of the agentic AI 'iMember 3.0' in August this year is now emerging as a new growth engine. As an enterprise GPT service, it provides solutions such as meeting minutes generation and voice maker functions, enhancing work efficiency. The company introduced version 1.0 to group affiliates in 2024, and this year is expanding to external clients through functional upgrades. Shinhan Investment & Securities researchers Kangho Oh and Jibeom Seo analyzed, "We see this as a mid- to long-term growth driver."

Shinhan Investment & Securities reflected the acceleration of the data center, electric vehicle charging, and AI service businesses by changing its valuation standard from the historical average price-earnings ratio (P/E) of 17.3 times to a peak level of 22 times. However, the firm explained that it applied a 10% discount rate to account for the slowdown in existing business growth and the operating losses of some subsidiaries.

They forecast, "In the second half of this year, as the overall domestic IT service sector enters a recovery phase in both performance and stock price, Lotte Innovate is also expected to improve profitability through operating leverage effects from the expansion of new businesses."

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