LG Corp (003550.KS) is a holding company and major South Korean chaebol (family-run industrial group) that is engaged in the electronic, chemical, and telecommunication industry worldwide.>[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] The company generates profits through revenues, brand royalties, dividends and rental income from its more than 45 subsidiaries and affiliated companies in Korea and around the world. The most well-known are LG Electronics for consumer electronic products, LG Chem for petrochemical products and LG Household & Health Care, where LG Corp holds each a stake of around a third. LG Electronics accounts for more than half of LG Corp’s total sales. LG Electronics lags behind Samsung in semiconductors and smartphones but is a strong competitor in areas such as TVs, washing machines, and refrigerators. Headhunting and patent infringement suits are common between these two rivals.
LG Corp was founded in 1947 and is headquartered in Seoul, South Korea. The shares are listed on Korea’s stock exchange since 1970. Major shareholder is the CEO and founder’s grandson, Mr. Bon-Moo Koo, with an ownership of around 11 percent, followed by the National Pension Service of Korea with an ownership of about 8 percent. Around 52 percent of the shares are in public hand.
With a workforce of only 117 employees, the holding reported revenues of 8,544bn KRW (8bn USD) and profits before tax of 2,325bn KRW (2bn USD) over the nine months of this year. This is an increase of 21 percent and 127 percent respectively compared to the same period a year ago. In 2016, revenues and profits increased 8 percent and 18 percent respectively. The operating margin of 17 percent is above industry average. LG Corp had cash reserves of 1,573bn KRW (1.4bn USD) at the end of September 2017. The company shows a solid balance sheet with a good profitability and financial strength. The equity ratio is at 77 percent and the gearing, defined here as total liabilities to total equity, at 30 percent only.
LG Corp’ shares are in an uptrend since January 2016 and gained almost 60 percent in value since, 49 percent alone this year. The company is priced at seven times earnings only. The shares trade at book value and at 17 times cash flow. The latest dividend yielded around 1.5 percent. The majority of covering analysts rate the stock as an outperformer.
LG Corp is a well-diversified tech conglomerate. The holding is in its whole structure better than the sum of its subsidiaries regarding profitability and valuation. We are confident LG Corp will keep a leading position in key technologies such as automotive electronics, energy solution, batteries for electric vehicles, and life sciences. The shares have an upside potential of at least 20 to 30 percent over the next 12 months.
AIS Rating: ★★★★☆
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 Q1-3 only |
|
|---|---|---|---|---|---|---|
| EPS (KRW) | 5,336 | 5,097 | 4,804 | 5,371 | 6,114 | 11,940 |
| Change | -4% | -4% | -6% | 12% | 14% | 130% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 7 | 16 | 1 | 17 | 77% | 16% | 30% | 1.5% |
* Equity / Total Assets, ** Total Liabilities / Equity
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