Meritz Securities said on the 7th that a rerating of LG Electronics' corporate value is underway as the artificial intelligence (AI) data center cooling system and Robotics businesses take off in earnest. It more than doubled its target price to 260,000 won from 120,000 won and maintained a Buy rating. The previous session's closing price was 185,700 won.
Yang Seung-su, an analyst at Meritz Securities, projected LG Electronics' second-quarter consolidation sales at 22.8 trillion won and operating profit at 1.4734 trillion won. Operating profit is expected to jump 130.4% from a year earlier and beat the market consensus of 1.0346 trillion won by 42.4%.
The market expects the U.S. tariff refund effect to contribute significantly to earnings improvement, but Meritz Securities also projected that the core business's profitability will remain solid.
Yang said, "If results beat market expectations, the tariff refund effect will be the biggest factor, but considering HS's price hikes and growth in subscription appliances and VS's expansion of high-margin infotainment sales, the core business profitability is also likely to remain solid," adding, "On top of that, with LG Innotek's strong results, the magnitude of profit improvement on a consolidation basis is expected to expand."
Meritz Securities noted that this week's share-price rise is being driven by a "substance," not the same kind of expectations as in the past.
Yang said, "In the past, the rerating of LG Electronics' share price was led by recovery in core business profitability and the Apple Car momentum," adding, "Now, with new businesses such as AI data center cooling systems and Robotics becoming concrete, we judge that more tangible rerating drivers are taking shape than the past Apple Car expectations."
In particular, it forecast that the AI data center cooling business will become a new growth axis.
According to Meritz Securities, as power density at AI data centers increases, LG Electronics has entered the final stage of completing quality tests for cooling systems with a North American hyperscaler client. If it wins the final order, contribution to earnings is expected to begin within 6 to 9 months. Liquid cooling (CDU) products are also undergoing quality tests with AI GPU clients, and if orders ramp up, they are expected to serve as an additional driver for corporate value gains.
In the mid to long term, it also focused on the potential to expand the business into a solutions corporations that covers the full scope of AI data center infrastructure together with affiliates.
The Robotics business was also presented as a growth driver.
Meritz Securities explained that the business is expanding around actuators and home robots, while building an ecosystem with major domestic robot companies and pursuing data acquisition and algorithm advancement in robot operating environments through physical AI collaboration with Nvidia.
Yang said, "This can go beyond simple hardware supply to strengthening robot platform capabilities, and in the mid to long term, it is expected to act as a factor that increases the company's potential to expand across the home and industrial robot markets."
Yang said, "Until now, LG Electronics traded at a discount to the KOSPI average price-to-book ratio (PBR) due to low core business growth, limited visibility in new businesses, and a low return on equity (ROE)," adding, "On top of profitability improvements centered on HS and VS, as the AI data center cooling system and Robotics businesses take shape, we judge that the existing discount factors are gradually being resolved."