Meritz Securities said on the 18th that even though all subsidiaries grew evenly and reported results that beat market expectations for LS(006260), the stock remains undervalued. It maintained a "buy (BUY)" rating and a target price of 6.4 million won. The previous session's closing price for LS was 323,500 won.
Earlier, LS said it posted 595.6 billion won in operating profit on a consolidation basis, up 152.8% from a year earlier. That is 25.3% above the market consensus (475.2 billion won) and 14.5% above Meritz Securities' estimate (520.2 billion won).
Operating profit at the core subsidiary LS Cable & System was 141.3 billion won, up 71.3% from a year earlier. Improved bus duct results, a turnaround to profit in the telecommunications cable division, and solid profitability in ultra-high-voltage submarine cables drove earnings growth.
Jang Jae-hyuk of Meritz Securities said, "As sales from early-year, high-margin, ultra-high-voltage submarine projects were somewhat concentrated and major subsidiaries have seasonality, second-half results may be maintained or edge lower compared with the second quarter."
Still, medium- to long-term growth potential remains intact. Jang said, "With continued expansion in bus duct sales and the start of new revenue contributions from Donghae Submarine 4 and 5, the company will enter a full-fledged growth phase from 2027."
LS MnM also proved strong profit resilience. Second-quarter operating profit was 175.7 billion won, down 7.3% from the prior quarter but swinging to a profit from a year earlier. Compared with last year's annual operating profit of 223.4 billion won, it recorded 365.3 billion won in just the first half of this year.
Firm sulfuric acid prices were seen to have largely offset the profitability pressure from lower gold and silver prices. In the second half, profit may decline as the rise in metal prices and the exchange-rate effect slow from the first half, but given currently high sulfuric acid prices, Meritz Securities believes quarterly operating profit resilience of 50 billion won or more can be maintained.
Operating profit at LS I&D was 74.1 billion won, up 165.6% from a year earlier and far exceeding market expectations. Essex Solutions, which handles the magnet wire business, accounted for more than 80% of total profit. As demand expanded for magnet wire for battery electric vehicles (BEVs) and CTC wire for transformers, favorable exchange rates and copper prices also contributed to earnings improvement.
Analyst Choi said, "The reaffirmed profit growth at LS Cable & System and the heightened profit resilience at LS MnM through the results, along with the benefit to major affiliates from sustained high sulfuric acid prices and rising copper prices, suggest the stock remains undervalued."