[Click eStock] "LS, Subsidiary's US Offshore Wind Cable Contract Is a Positive Factor"

Samsung Securities Report

[Asia Economy Reporter Minji Lee] On the 14th, Samsung Securities maintained a buy rating and a target price of 90,000 KRW for LS. This is based on the expectation of improved performance due to the order of offshore wind power cables in the U.S. by LS Cable & System, a core subsidiary.

On the previous day, after the market closed, LS announced that LS Cable & System had secured an offshore wind power cable order worth 355 billion KRW in the U.S. The order size accounts for 7.3% of LS Cable & System's 2020 sales and about 3% of LS's consolidated sales. Researcher Yang Il-woo of Samsung Securities said, "Although some view the sales proportion as not large, the operating profit margin of offshore wind power is estimated to be three times that of the existing cable manufacturing business, and if it is a turnkey order including construction, it could increase up to five times compared to the existing cable manufacturing business," adding, "The profit proportion will expand significantly compared to the sales proportion."

This order is significant as it surpassed European competitors in the U.S. market. Especially, the U.S. plans to deploy 30GW of offshore wind power by 2030 and 110GW by 2050, so additional orders are expected. Researcher Yang analyzed, "Due to the burden of long-distance transportation costs, it was expected that the possibility of winning orders would be lower compared to European competitors, but LS succeeded in securing orders in the high-growth U.S. market," and added, "The plan in New Jersey, presumed to be the client for this order, accounts for about one-tenth of the entire U.S., so LS's long-term growth outlook due to additional orders is positive."

The operating profit margin of LS Cable & System is also expected to improve further due to this order. LS Cable & System, which maintained an average operating profit margin of 3.1% over five years until 2020, saw its operating profit margin rise to around 4% after securing a submarine cable order in Taiwan. The fact that copper prices are rising again is also positive. Copper prices, which fell about 3% in the third quarter compared to the previous quarter last year, rose about 3% again in the fourth quarter, showing a continuous upward trend. Researcher Yang explained, "Despite these favorable factors, LS's stock price is trading at about a 60% discount compared to the average PER (price-to-earnings ratio) of 18.1 times for major cable competitors as of 2022, making its valuation attractive."