[Click eStock] "LG Uplus, Investor Consensus Needed on Growth Strategy in Non-Telecom Sectors"

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a buy rating and a target price of 22,000 KRW for LG Uplus on the 26th. This decision is based on the judgment that, for a stock price rebound, it is necessary to gain investor consensus on growth strategies in non-telecom sectors and to take an active stance on shareholder return policies.

LG Uplus's strategic focus can be summarized into three points: securing profitability in the separate business segment, expanding the non-telecom revenue ratio to 30%, and securing leadership in the paid broadcasting market by leveraging Netflix and Disney Plus.

Looking at financial performance, it appears likely to generate operating profit exceeding 1 trillion KRW this year, and operating profit is expected to surpass 1.1 trillion KRW next year. Profitability is beyond expectations.

The point investors view ambiguously is the expansion of the non-telecom revenue ratio. The non-telecom businesses targeted by the company include six areas: AI, cloud, big data, security, B2B solutions, and content. To this end, the company plans to expand related business personnel from 800 to 4,000. Additionally, organizational restructuring was carried out by establishing new divisions such as the Content and Platform Business Unit, the Idle Nara Business Unit, and the Advertising Business Unit.

Researcher Choi Nam-gon explained, “Overall, there is no problem in context, but the distinction between the non-telecom sectors presented and the core telecom business is ambiguous, the numbers related to these businesses are not clearly separated, and concerns about whether growth will translate into enhanced shareholder value are failing to gain investor consensus.”

It is also regrettable that the dividend payout ratio does not reach 50%. This is because, following SK Telecom's spin-off, the undervaluation appeal of KT and LG Uplus, which are comparable companies, is expected to attract attention. Researcher Choi Nam-gon analyzed, “If the dividend payout ratio is clearly raised to the level of KT, investment attractiveness could increase. Although the non-telecom sector is somewhat lacking compared to KT, the core telecom business can be evaluated more highly.” Currently, the company's dividend payout ratio is officially expected to remain above 40%. At the end of this year, a year-end dividend of 450 KRW is expected, and a mid-year dividend of 200 KRW is anticipated in the middle of next year.