20171128-三星证券-Concerns_over_ownership_change_excessive_8页_472kb

LG International Summary

Core Content

This document provides an analysis of LG International (001120) from Samsung Securities, highlighting the company's recent performance, market position, and financial outlook. The report is authored by Jaeseung Baek and Seul Kim, with the primary focus on the impact of a recent ownership change and the company's potential for future growth.

Main Points

• Stock Performance: LG International's shares have dropped by 13% since the announcement of a change in majority shareholder. The analysts believe this decline is excessive and not justified by the company's performance.
• Fundamental Analysis: The ownership change has had minimal impact on the company's fundamentals. The company's IT trading margin is in line with other trading firms, indicating no special treatment from captive clients. The subsidiary Pantos Logistics has seen declining profitability due to industry downturns, not increased margins.
• Recommendation: The analysts maintain a BUY recommendation, citing the potential for strong coal prices, increased production at the GAM coal mine, and reduced expectations for logistics and infrastructure operations.
• Target Price: The updated target price is KRW36,000, a 3% increase from the previous estimate of KRW35,000.
• Earnings Forecasts:
  • 2017E EPS: KRW2,886
  • 2018E EPS: KRW3,639 (up 12.1% from 2017E)
  • 2019E EPS: KRW3,744
• Financial Metrics:
  • Revenue: Expected to grow from KRW11,967 in 2016 to KRW13,400 in 2019.
  • Net profit (adj): Expected to increase from KRW85 in 2016 to KRW172 in 2019.
  • Operating profit: Expected to rise from KRW174 in 2016 to KRW258 in 2019.
  • P/E (adj): Projected to decrease from 11.9 in 2016 to 7.2 in 2019.
  • P/B: Expected to remain around 0.7 in 2019.
  • EV/EBITDA: Projected to decrease from 9.5 in 2016 to 6.4 in 2019.
• Industry Comparison: LG International's financial performance is compared with global and domestic peers, with the analysts noting that it is undervalued relative to the industry average.
• Valuation Analysis: The company is evaluated using a sum-of-the-parts approach, with the enterprise value estimated at KRW1,396.4 billion and a target price of KRW36,000.

Key Information

• Ownership Change Impact: The analysts argue that the ownership change has not significantly affected the company's fundamentals or earnings.
• Coal Price Assumption: The analysts have lifted their assumption for coal prices in 2018, which has led to a 9% increase in the 2018 operating profit forecast.
• GAM Coal Mine: The mine has seen a rapid increase in net profit in 2017, with continued growth expected in 2018.
• Market Cap: As of the latest data, the market cap is KRW1.0t/USD0.9b.
• Shares Outstanding: 38,760,000 shares.
• Dividend Yield: Remains at 0.9% for all years from 2016 to 2019.

Financial Highlights

• Gross Margin: Increased from 1.9% in 2016 to 2.3% in 2018.
• ROE: Improved from 7.2% in 2016 to 9.8% in 2018.
• Net Debt to Equity: Decreased from 74.5% in 2015 to 46.9% in 2019.
• Interest Coverage: Increased from 1.7 in 2015 to 5.8 in 2019.

Analyst Disclosures

• As of Nov 27, 2017, the analysts did not own any shares or debt instruments convertible into shares of LG International.
• Samsung Securities' holdings of shares and debt instruments convertible into shares of LG International would not exceed 1% of the company's outstanding shares if converted.

Conclusion

The analysts believe that LG International is a good investment opportunity, despite the recent ownership change. They maintain a BUY recommendation, citing strong fundamentals, potential for increased coal prices, and improved production at the GAM coal mine. The company's financial metrics indicate a growing trend in profitability and a reasonable valuation compared to industry peers.