New Businesses Make Their Presence Felt Amid Shaky Earnings [Weekend Money]

LG Electronics Posts Q3 "Earnings Shock"
Five Securities Firms Raise Target Prices
"New Businesses Like AI Data Centers and Robots Are Growth Drivers"

LG Electronics significantly missed market expectations in its third-quarter results, but securities analysts instead raised their target prices. They believe that new businesses, including cooling solutions for AI data centers, will be a key driver influencing the share price going forward.

LG Electronics recorded revenue of KRW 23.8 trillion and operating profit of KRW 781.8 billion in the third quarter of this year. Analysts described the results as an “earnings shock,” with operating profit falling more than 20% short of securities firms’ forecasts. Lee Jongwook, an analyst at Samsung Securities, explained, “Overall, we believe this reflects greater earnings volatility due to costs, exchange rates, and the timing of revenue recognition, rather than a deterioration in revenue competitiveness.”

Despite this, Samsung Securities, KB Securities, DB Securities, Daol Investment & Securities, and Yuanta Securities raised their target prices for LG Electronics. Yuanta Securities set the highest target price, raising it from KRW 240,000 to KRW 280,000.

The securities firms cited “new businesses” as the reason for their target price increases. One pillar of LG Electronics’ new business portfolio is cooling solutions for AI data centers. The company secured orders worth KRW 600 billion in this area in the first quarter of this year and recently signed a contract to supply cooling solutions for AI data centers in North America with a capacity of 5 GW.

“Growth in the AI data center cooling solutions business is gradually becoming more visible. Increased orders for chillers and air-conditioning units have already been confirmed, and related revenue could grow from around KRW 1 trillion this year to KRW 5 trillion within the next two years,” Lee said. He added, “If revenue from cooling solutions begins to grow in earnest while earnings from existing businesses stabilize, this could lead not only to earnings growth but also to a revaluation of the multiple applied to LG Electronics’ business portfolio.”

Cho Hyunji, an analyst at DB Securities, also highlighted the contribution of the AI data center business to earnings. “LG Electronics’ fundamentals remain solid, and with orders for chillers for AI data centers expected to exceed KRW 3 trillion within this year, the contribution of these orders to earnings is drawing closer,” Cho said.

“Robots” are another pillar behind expectations for potential gains in LG Electronics’ share price. “Concrete plans to commercialize robots centered on actuators are being put into action,” said Ko Sunyoung, an analyst at Yuanta Securities. “The company is conducting tests at the Yangjae Data Factory with 200 CLOiD units. Given its technological strengths, including a high-efficiency design, superior efficiency for the same size, and the use of existing heat-dissipation technologies, the business is expected to establish itself as a next-generation growth driver following AI data centers.”

This content was produced with the assistance of AI translation services.