[Click eStock] "LG, Stock Undervalued with LG CNS IPO Hopes... Target Price Up"

On the 2nd, SK Securities maintained a 'Buy' investment rating on LG and raised the target price from the previous 100,000 KRW to 120,000 KRW.

LG's first-quarter earnings this year recorded sales of 1.6 trillion KRW and operating profit of 500 billion KRW, down 7.6% and 39% respectively compared to the same period last year. Operating profit was sluggish due to a 46.6% decrease in equity-method income following a decline in LG Electronics' net profit. However, LG Electronics' stock price increased by 30.3% since the beginning of the year, reflecting expectations for future earnings improvement rather than concerns about current performance. With LG Electronics' net profit expected to increase year-on-year in 2023 and improvements in major subsidiaries' earnings, LG's consolidated operating profit for this year is expected to rise by 3.1%.

In particular, considering the value of LG CNS, there is judgment that there is additional potential for stock price appreciation. The discount rate compared to LG's net asset value (NAV) is 55.4%, which only reflects LG CNS's book value of 194.4 billion KRW. Currently, LG CNS's over-the-counter market capitalization is about 600 million KRW, and reflecting this equity value raises the discount rate against NAV to 62.4%. Although LG's market capitalization has increased by 1.6 trillion KRW since the beginning of the year, the value of subsidiary equity has increased by 3.6 trillion KRW, making this year's stock price rise not burdensome. Especially, with the proportion of listed subsidiary equity value in NAV at 90.3%, the objectivity of the discount rate is high, leading to the judgment that there is sufficient room for further stock price increases considering the current discount rate.

Choi Gwan-soon, a researcher at SK Securities, analyzed, "The current stock price level is still undervalued from the perspective of the discount rate against NAV, and the supply-demand conditions are favorable due to share buybacks," adding, "The strong performance of LG CNS and the expectation of an IPO in the second half of the year are also positive factors for the stock price."