[Click eStock] "LG Limits Downside Risk with Share Buyback... Benefits from Battery Business Profitability"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Hana Securities maintained its investment opinion of 'Buy' on LG and kept the target price at 125,000 KRW on the 17th.

LG's consolidated sales for the third quarter amounted to 1.75 trillion KRW, and operating profit was 510 billion KRW. Sales increased by 4.8% compared to the same period last year, but operating profit decreased by 15.2%, falling short of consensus.

The decline in operating profit was due to equity method losses affecting LG Electronics, impacted by LG Display, and poor overseas business performance caused by China's lockdowns affecting LG Household & Health Care, resulting in equity method income of 340 billion KRW, down 23.3% year-on-year. However, the performance improvement trend of unlisted subsidiaries such as LG CNS and D&O continues. Recently, with the rise in stock prices of LG Chem and LG Electronics, the value of LG's listed subsidiaries' equity has surged, while LG's stock price increase has been minimal, further widening the discount rate compared to the net asset value (NAV). Nevertheless, as the profitability of the group's battery business is being maximized, LG's stock price is expected to gradually reflect this in the future.

According to LG's shareholder value enhancement plan, downside risk is expected to be limited due to share repurchases. LG has been conducting a treasury stock acquisition worth 500 billion KRW since May 31. Based on the board resolution stock price of 74,000 KRW, this corresponds to approximately 6.76 million shares. As of October 18, 2.13 million shares have been purchased, leaving significant room for further acquisitions. Since this is a long-term trust contract for about three years until the end of 2024, there is no need to acquire all shares in a short period. However, as LG emphasized that it will acquire the entire contract amount without early termination, it is expected to purchase shares as needed over the remaining two years. Although purchases were temporarily halted after the stock price recovered to the 80,000 KRW level, repurchases are expected to resume if the stock price declines, so downside risk is anticipated to be quite limited.

Choi Jung-wook, a researcher at Hana Securities, analyzed, "With the recent significant rise in stock prices of LG Chem and LG Energy Solution, the proportion of LG Chem's equity value in LG's NAV has exceeded 49%. The LG Group is making proactive investments to secure profitability in the battery business and stable procurement of raw materials, so it is expected to secure mid- to long-term competitiveness, which will be reflected in the stock price."