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LG Electronics: Automotive Component Business to Expand
Writer : admin
Date : 2021.04.16     Hit : 59


Maintain BUY and target price of KRW220,000; potential contract manufacturing partnership for “Apple Car”              
We maintain BUY and our 12m TP of KRW220,000 for LG Electronics because of the following: 

(1) The increasing possibility of Magna International (Magna: MGA) entering a contract manufacturing partnership with Apple to manufacture electric vehicles (named “Apple Car”) means potential business expansion for LGE’s JV with Magna, a business engaged in the manufacture of EV parts (LG-Magna e-Powertrain), is more likely.

(2) The restructuring of the Mobile Communications division (expected in 1H21) would likely remove uncertainty over the strain that the loss-making business has put on earnings.

(3) An earnings surprise expected in 1Q21 should alleviate earnings concerns. 

Focus on Magna CEO’s first official comment regarding Apple Car manufacturing 

At a recent Society of Automotive Analysts event, CEO Swamy Kotagiri of Magna International—North America’s No. 1 and the world’s third-largest automotive component maker—announced that his company is ready and willing to build a vehicle for Apple via the ramp-up of North American facilities if investments are guaranteed under contract terms. We believe attention should be paid to this first official comment regarding Apple Car manufacturing by Magna, which is currently in contract CBU manufacturing partnerships with global auto giants such as Mercedes Benz, BMW and Toyota. We believe his expression of confidence lies in the fact that e-motors and inverters—essential EV parts—can be procured through the LG-Magna JV. 

1Q21E OP of KRW1.5tn to be positive earnings surprise 

For 1Q21, we estimate OP to reach KRW1.5tn (+130% QoQ/+36% YoY), beating the market consensus of KRW1.2tn by 27%. The earnings surprise should come from earnings recoveries for the Home Appliance & Air Solution and Home Entertainment divisions, as demand for premium consumer electronics, particularly ultra-large TVs, is surging after post-vaccination “revenge spending” (spending that compensates for isolation experienced during the pandemic). However, LGE stock fell 17.8% from its previous peak reached on Jan 21 (KRW185,000) amid uncertainty over the direction of the mobile business; we see the drop as excessive. A successful transition into the automotive electronic component business should drive a re-rating over the mid to long term, so we expect a rapid recovery in stock price.   

Product contact : sales@taconic.co.kr 

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