[Click eStock] "Holding Company LG, Discount Rate Expands with Ensol Listing"

by Gi Yeonjin

Published 21 Feb.2022 08:34(KST)

[Asia Economy Reporter Ji Yeon-jin] Shinhan Financial Investment announced on the 21st that regarding LG, due to the listing of LG Energy Solution, LG Chem's market capitalization has decreased, expanding the discount rate on net asset value (NAV). They maintained a buy investment opinion but lowered the target price from 125,000 KRW to 98,000 KRW.

[Click eStock] "Holding Company LG, Discount Rate Expands with Ensol Listing"

Researcher Kim Su-hyun of Shinhan Financial Investment stated, "Currently, LG's NAV discount rate is estimated to be over 55%," adding, "One of the stock price momentum factors is the IPO of CNS, which is evaluated at book value (book value of 194.3 billion KRW) and is known to be valued at over 3 trillion KRW. In this case, the equity value is estimated at 1.4 trillion KRW, which is expected to contribute to the NAV discount."

LG's consolidated sales in the fourth quarter of last year increased by 41.7% year-on-year to 2.46 trillion KRW, and operating profit surged by 264.5% to 360.2 billion KRW. As a pure holding company without its own business divisions, the market generally does not place much significance on consolidated results. This is because the core subsidiaries such as LG Electronics, Uplus, and the chemical division, which are key to the consolidated results, have already been reflected in both the subsidiary and holding company stock prices.

However, LG's unlisted subsidiary LG CNS recorded strong performance with sales and operating profit increasing by 25.8% and 2.4% year-on-year, respectively. This growth was driven by benefits from digital transformation for corporate clients, cloud migration effects, and increased performance from next-generation system construction for financial companies. In the case of S&I Corporation, the construction subsidiary segment completed a sale contract in December 2021, and approximately 650 billion KRW in sale proceeds is expected to be inflowed.

Researcher Kim said, "Dividends were 2,800 KRW per share, a 12% increase from the previous year, and the dividend yield rose to 3.4% due to the stock price decline, but overall, the dividend increase was not as large as expected." He added, "Ultimately, the market can only continue to expect the utilization of idle cash, and it is hoped that the use of idle cash for M&A and other activities to secure new growth engines will be concretized in the future."