[Click eStock] LG Electronics and Magna Collaborate... Expanding Across the Group

Increased Collaboration Potential with Various Affiliates Including Battery, Camera, and Interior Materials

[Asia Economy Reporter Minwoo Lee] There is a forecast that the collaboration between LG Electronics and the global automotive parts manufacturer Magna will expand throughout the LG Group, from LG Chem to LG Hausys.

On the 24th, Meritz Securities diagnosed this collaboration as a positive factor for the entire LG Group. Although it is limited to electric vehicle powertrains (drive motors, inverters, battery pack components) in the short term, it is analyzed that the scope of cooperation will expand to the entire LG Group in the mid to long term, including LG Chem (batteries), LG Innotek (cameras, V2X modules, 3D sensing modules, general motors), and LG Hausys (interior materials). Researcher Juminwoo from Meritz Securities explained, "Through this collaboration, LG Electronics can secure new complete vehicle customers by utilizing Magna's sales network, absorb Magna's quality management know-how, and also alleviate investment burdens. Magna, on the other hand, not only can reliably receive drive motors and inverters through LG Electronics but also has established a foundation to cooperate with the entire LG Group."

The day before, LG Electronics announced a contract disclosure to spin off the electric vehicle parts division within the vehicle components business division and sell 49% of its shares to Austria Magna Metalforming GmbH, a subsidiary of Magna. Magna, headquartered in Canada, is an automotive parts manufacturer and automotive contract manufacturer. Since the 1970s, it has been producing complete vehicles on consignment for European OEMs.

Meritz Securities expects the sales of the newly established spun-off company (electric vehicle powertrain) to rapidly grow from 250 billion KRW in 2020, 530 billion KRW in 2021, 848 billion KRW in 2022, to 1.3 trillion KRW in 2023. The break-even point (BEP) is expected to be reached in 2022. The appropriate margin is estimated to be 6-7%. Excluding the electric vehicle powertrain (which accounted for 10% of sales in 2021), the infotainment (60%) and lighting (30%) sectors are expected to smoothly return to profitability in 2021. Reflecting all of these, the consolidated sales of the automotive electronic components (VS) business division are expected to be 5.6 trillion KRW in 2020, 7.5 trillion KRW in 2021, and 9.3 trillion KRW in 2022.

Against this background, the target stock price was raised by 39.7% to 167,000 KRW. The lead researcher explained, "Although short-term performance fluctuations are minimal, the appropriate price-to-book ratio (PBR) was raised from 1.24 times to 1.65 times. Based on the profitability turnaround of the vehicle components, a return on equity (ROE) of 15.2%, surpassing the 13.7% ROE in 2017, is expected, and through cooperation with Magna, an expansion of the global complete vehicle customer base is anticipated."