SK Securities said on the 27th that the current share price of LG CNS does not fully reflect the earnings momentum (upside potential) from growth in cloud and artificial intelligence (AI) and a recovery in investment by group affiliates. It set a target price of 80,000 won and a buy rating. The previous trading day's closing price for LG CNS was 58,000 won.
LG CNS is an information technology (IT) company of the LG Group founded in 1987, and it listed on the stock market in February this year. Its main business segments are cloud and AI, smart engineering, and systems integration (SI). By segment, the shares of sales on a cumulative basis for the third quarter this year are 58.9%, 18.6%, and 22.5%, respectively.
LG CNS's key growth drivers are the expansion of its cloud and AI businesses. Sales in that segment are forecast at 3.8 trillion won this year, up 13.2% from a year earlier, and are expected to rise 13.7% to 4.3 trillion won next year.
Nam Hyo-ji of SK Securities said, "The acceleration of cloud migration in the public sector and increased AI investment by private corporations are driving demand." The smart engineering segment is expected to recover next year on the back of a rebound in demand from group affiliates and the addition of new non-captive customers in shipbuilding and defense.
The recent share price corrected after a block deal (after-hours bulk trade) by Crystal Korea, returning to a level similar to the time of listing. Nam said, "The possibility of additional sales ahead is an overhang, but once the overhang is cleared after the lock-up period ends, the stock will enter a full-fledged re-rating phase."
She added, "At the current share price level, earnings momentum is not fully reflected, making it time to approach the stock from a medium- to long-term buy perspective."