Securities market continues to raise LG Electronics target... “New business sales expansion, timing to reflect in stock price”

(Seoul = Yonhap News) Reporter Kim Tae-jong = Samsung Securities announced on the 8th that it would maintain its investment opinion on LG Electronics [066570] as 'buy' and raise its target stock price from 210,000 won to 250,000 won. The closing price of the battlefield is 208,000 won.

Researcher Lee Jong-wook said in the report that day, "LG Electronics' operating profit in the third quarter was an earnings shock, falling 26% below our estimate," but judged, "There is no need to interpret this as a damage to the company's fundamentals."

The third quarter sales and operating profit announced by LG Electronics the day before were KRW 23.8 trillion and KRW 781.8 billion, respectively an increase of 8.9% and 13.5% compared to the same period last year, falling below the market consensus (average estimate) by more than 20%.

Researcher Lee pointed out, “Short-term factors such as raw material costs and logistics costs for home appliances, exchange rates, and timing of sales recognition for electronics have increased profit volatility, but there has been no change in the more important directions of product competitiveness, sales growth, and new business expansion.”

He continued, "In particular, I believe that the key drivers of LG Electronics' current stock price are the steady growth of AI (artificial intelligence) data center cooling solutions and electronic components and the possibility of commercialization of robots, rather than the performance in the second half of the year. As the bottom of short-term profits has been confirmed through the third quarter performance, it is necessary to pay attention to the time when the sales expansion of new businesses will be reflected in the stock price."

“The growth of the AI ​​data center cooling solution business is gradually becoming visible,” he said. “An increase in orders for chillers and air conditioners is already being confirmed, and related sales are likely to expand from about KRW 1 trillion this year to KRW 5 trillion within the next two years.”

He also predicted, “Most of the current orders are estimated to be centered around chillers, but it appears that they have recently begun to expand to CDUs (cooling water distribution units),” adding, “If sales growth in cooling solutions begins in earnest while profits in existing businesses are stabilizing, this could lead to not only increased profits but also a multiple re-evaluation of LG Electronics’ business portfolio.”

Accordingly, this year's operating profit was estimated at KRW 4.2 trillion, down 6% from the previous level to reflect poor performance in the third quarter, and next year's operating profit was forecast at KRW 4.6 trillion, up 8% from the previous level to reflect increased sales of data center cooling solutions and stabilization of the profitability of the MS division (in charge of media and entertainment businesses such as TVs).

On this day, DB Securities and KB Securities also raised LG Electronics' target stock price from 245,000 won to 265,000 won and 260,000 won, respectively, while Korea Investment & Securities and Kiwoom Securities maintained the previous price of 265,000 won and 230,000 won.