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[Alpha Biz= Kim Jisun] Hana Securities predicted on Friday that LG's earnings would decline due to the underperformance of its major subsidiaries last year. The firm maintained its "Buy" rating but lowered its target price from 105,000 KRW to 95,000 KRW.

 

Hana Securities explained, "Considering the significant decrease in the value of shares due to the stock price decline of key listed subsidiaries like LG Chem, LG Household & Health Care, and LG Electronics, we have reduced the target price. We estimate that LG's consolidated net profit and standalone operating cash flow for the fourth quarter of last year both fell far short of projections."


LG Electronics recorded a 946.5 billion KRW impairment loss due to fluctuations in asset/liability evaluations related to its overseas subsidiaries. LG Chem is expected to see weak earnings due to the seasonal off-peak period and falling prices of cathode materials, despite the rise in the exchange rate between the won and dollar. LG Household & Health Care is also expected to miss earnings expectations due to weakened demand in the household products and beverage sectors, according to researcher Choi.


Hana Securities also analyzed that the upcoming IPO of LG CNS, where the confirmed offering price is lower than the over-the-counter trading price, could be a burden on LG's stock price. However, they expect minimal impact on the fundamentals, as the market's concerns are seen as largely unfounded.


Hana Securities noted, "We estimate that there is unlikely to be significant demand from existing LG shareholders who are focused solely on the growth potential of LG CNS, so the impact on the stock price is expected to be minimal." After the IPO, LG’s final stake in LG CNS will be 45%.


The firm added, "The poor performance of key subsidiaries will inevitably lead to a decrease in LG's equity-method income and royalty income." Hana Securities also pointed out that LG announced an expansion of shareholder returns through measures such as improving its dividend policy in November last year, and additional share repurchases could take place next year.

 

 

 

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