[Click e-Stock] "LG Uplus, Negative Factors Already Reflected in Stock Price... Opportunity for Bottom Buying"

Undervalued Situation Expected to Continue Due to Weak Performance Outlook
Dividend-Based Investment Strategy Recommended
Buying Opportunity if Price Falls to Around 9,300 Won

Hana Securities recommended an investment strategy based on dividends for LG Uplus on the 18th. They maintained a 'Neutral' investment rating and a target price of 11,000 KRW. LG Uplus's closing price on the 17th was 9,810 KRW.

Researchers Kim Hong-sik and Go Yeon-su of Hana Securities stated, "We believe the undervaluation situation will continue for the time being," adding, "Despite the profit decline, it is highly likely that the 2022 dividend level will be maintained for some time, making a trading strategy based on expected dividend yield appear effective." They continued, "There is a strong possibility that the dividend payout ratio will ultimately be raised to 50%, so a slight decrease in profits is unlikely to reduce dividends," and added, "It is highly probable that the annual total dividend per share (DPS) of 650 KRW will be maintained not only in 2023 but also in 2024."

They identified four reasons for LG Uplus's undervaluation: ▲ a weak earnings outlook for Q4 2023 ▲ considering recent trends in mobile network operator (MNO) cellphone subscribers and 5G net subscriber increases, the earnings outlook for 2024 is also not bright ▲ given the current status of 5G plan launches, stagnation in wireless communication service revenue, which is the core business, is inevitable for the time being ▲ after a three-year profit growth period from 2020 to 2022, the company is entering a profit decline phase starting in 2023.

LG Uplus's operating profit for Q4 2023 is expected to be 217.6 billion KRW, falling short of the consensus (market average forecast) of 261.3 billion KRW. The cause of the poor performance is the slowdown in service revenue growth alongside an increase in operating expenses. Although Q4 marketing expenses are expected to decrease compared to a year ago, they are projected to slightly increase compared to the previous quarter. An increase in amortization expenses related to customer management IT systems is also anticipated due to higher intangible asset amortization. Additionally, the reversal of labor costs recognized in Q4 2022 is unlikely to occur this time, suggesting a negative base effect.

The two researchers said, "Through this Q4 earnings announcement, investors will confirm the shift to a decline in operating profit last year, and considering subscriber and major operating expense trends, it is highly likely they will recognize that a profit increase turnaround this year will not be easy." They added, "Therefore, while a deterioration in investor sentiment during the earnings announcement season seems inevitable, since the stock price has already reflected some of the negative factors, we now recommend focusing on buying at the low point as an investment strategy." They particularly analyzed that a strong rebound attempt is expected at the 9,300 KRW level, which corresponds to an expected dividend yield of 7%, making it an opportunity for low-point buying.