To enjoy solid cash flow in 2023

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The author is an analyst of NH Investment & Securities. He can be reached at dongyang.kim@nhqv.com — Ed.

LG Corp is expected to strengthen its business portfolio, using its net cash holdings of W1.6tn for M&As and CVC establishment. Over the mid/long term, we expect share buybacks to continue. DPS should continue to rise on strong cash flow and a change in dividend policy. Its shares are trading at a 64% discount to NAV.

To enjoy solid cash flow in 2023

LG Corp’s dividend income is set to rise in 2023 on improved earnings at LG CNS and disposal of controlling stake in D&O operators (S&I Etspur 60% W364.3bn, S&I Construction 60% W290bn) despite reduced dividend payments by listed subsidiaries excluding LG U+ at the end of 2022. Following the listing of LG CNS, we expect a revaluation of LG CNS stocks and cash inflow from sales of some old stocks of LG CNS. LG Corp’s dividend payments should continue to climb on a change in its dividend policy (removal of limit on dividend sources).

In line with its mid/long-term share buyback program (W500bn by 2024) announced at end-May 2022, LG Corp has purchased 2.67mn shares (1.70% out of its outstanding shares) with an estimated combined worth of W211.4bn. As a result, its share price beat the market by 16%p over the relevant period. We also expect stock retirement of some or all of treasury shares after the buyback.

Although adhering to a Buy rating, we lower our TP from W150,000 to W120,000 to reflect share price changes for listed subsidiaries. LG Corp’s shares are currently trading at a 64% discount to NAV.

1Q23 preview: To post acceptable earnings

We expect LG Corp to post 1Q23 sales of W1,581.8bn (-11% y-y) and OP of W536.9bn (-35% y-y).

LG Electronics should record brisk earnings for 1Q23 on inventory adjustments, cost reductions, and normalization of transportation costs. LG Chem is also expected to see a profit figure recovery thanks to a reduction in losses following an improvement in petrochemical spreads and an increase in shipments of advanced materials. LG U+ is to deliver earnings improvement (albeit modest) on both strong sales at its wireless business and cost reductions. However, LG H&H’s cosmetics sales in China and DFSs likely remain sluggish.

LG CNS’s sales growth rate has been gradually declining since 2H22, but it is still expected to be around 10%, which is an acceptable number given current industry conditions. OPM likely remained flat y-y at 7.3%.

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