Hanwha Investment & Securities said on the 31st that LG CNS(064400) is set to benefit from expanded investment in domestic data centers (DC) without the burden of large-scale graphics processing unit (GPU) investment. It maintained a "buy" rating and raised the target price 11.1% to 100,000 won from 90,000 won.
Kim So-hye, an analyst at Hanwha Investment & Securities, said, "LG CNS has a structure that allows it to expand order volume without directly purchasing large-scale GPUs as domestic artificial intelligence (AI) data center capital expenditures (CAPEX) increase," and added, "It is a player that is capturing design-build-operate (DBO) demand as external operators increase their own data center investments."
Kim said, "The hyperscale references secured in Samsong and Jukjeon and the first overseas AI data center order in Indonesia are likely to serve as entry barriers for additional domestic and overseas DBO wins," adding, "Rather than short-term earnings momentum, operating, MSP, and AI services will accumulate over the mid to long term, revealing operating leverage from recurring revenue."
On short-term earnings stability, the financial digital transformation (DX) business was cited as a positive factor. Kim said, "Based on hyperscale references, including winning large-scale projects related to NH Nonghyup Bank, contributions to second-half earnings will begin in earnest," and added, "The robotics business is also pursuing a full-stack RX business that combines a foundation model (RFM), humanoid hardware, and its own training and operations platform 'PhysicalWorks,' and will enter the commercialization phase starting in the second half."
Hanwha Investment & Securities estimated LG CNS's revenue this year at 6.542 trillion won and operating profit at 593 billion won. It then projected that next year revenue will be 7.144 trillion won with operating profit of 707 billion won.
Kim said, "We raised the target price to 100,000 won by applying a 17 times target price-earnings ratio (P/E) to next year's expected earnings per share (EPS)," adding, "Earnings growth momentum will strengthen more after next year than in the second half, and valuation multiples, which have remained range-bound, will gradually re-rate on accumulated data center operations, cloud revenue, and additional new DBO orders."