LG's value to improve with mobile biz restructuring: analysts - The Korea Times
The Korea Times

Settings

ⓕ font-size

  • -2
  • -1
  • 0
  • +1
  • +2

LG's value to improve with mobile biz restructuring: analysts

A man talking on his phone walks past the logo of LG Electronics during Korea Electronics Show 2016 in Seoul, Oct. 27, 2016. Reuters
A man talking on his phone walks past the logo of LG Electronics during Korea Electronics Show 2016 in Seoul, Oct. 27, 2016. Reuters

LG Electronics can improve its corporate value by restructuring its money-losing mobile business and focusing on future growth engines for a post-pandemic world, analysts here said Saturday.

The company announced Wednesday that the future of its mobile communications unit was open to "every possibility" amid rumors that the company could sell the struggling mobile business.

"We think LG's announcement means they are going to either shut down or sell, or at least scale back on its mobile business," Cho Chul-hee, an analyst at Korea Investment Securities, said.

Analysts said LG's decision to restructure its mobile business is a positive development for shareholders, as this will boost the company's profitability and eventually its value.

LG's mobile business has been in the red since the second quarter of 2015, with an accumulated operating loss of nearly 5 trillion won (US$4.5 billion) as of last year.

"We have to wait for the final decision from LG, but it has become clear that the company is moving towards reducing losses from the mobile business," Park Hyung-wou, an analyst at Shinhan Financial Investment, said.

"The mobile business has been a factor that has been dragging down LG's corporate value."

Shares in LG have spiked after the company hinted at a possible restructuring of its mobile business, surging 12.84 percent Wednesday, and 10.78 percent Thursday, before cooling down with a 4.05 percent decline Friday to close at 177,500 won.

In recent days, local brokerage houses have been raising their target prices for LG, with many setting it between 190,000 won and 230,000 won.

"If LG decides to pull out of the mobile business, its impact on the company's value will be larger than the numbers on paper," Ko Eui-young, an analyst at Hi Investment Securities, said.

"Its mobile communications division has been a discount factor for LG because it lowered the credibility of the company's cash flow estimates with frequent one-off costs and prompted an inefficient allocation of the company's resources."

LG has been striving to turn its mobile business around in recent years, shifting its smartphone production base to Vietnam, while expanding outsourcing deals. Analysts estimate 60 percent of LG's phones are currently produced through original development manufacturing (ODM).

To boost its premium smartphone sales, LG last year launched the Explorer Project, a new mobile category highlighted by a different form factor.

Under the project, the company released the Wing, a dual-screen smartphone with a second rotating screen. For this year, LG is scheduled to launch a smartphone with a rollable OLED display.

But analysts say such efforts are not enough for LG, as it is overshadowed by Samsung Electronics and Apple in the premium segment, while Chinese brands dominate the budget phone sector.

LG's share in the global smartphone market is estimated to be between 1 and 2 percent.

"The smartphone market is no longer in a situation where everyone can grow," said Ko Jung-woo, an analyst at NH Investment Securities. "A company that can be considered a niche player in the market, has less possibilities for potential growth than in the past."

Analysts predicted that LG's first move will be to shrink its mobile division

"Considering its outsourcing deals and contracts with mobile carriers, it will be difficult for the company to withdraw from the mobile business in such a short period of time," said Lee Jong-wook, an analyst at Samsung Securities. "Shrinking the unit also helps the company if it wants to sell the business."

LG may also further shift its mobile business focus to ODM and budget phones, but industry observers note that such a strategy could be risky as it may damage its premium brand image in the TV and home appliance markets.

"In regard to its corporate value, the best scenario will be selling off the business," said Kim Ji-san, an analyst at Kiwoom Securities. "Even if it shuts down or sells the business, the company will keep its core mobile technologies and support its future engines, such as internet of things systems for home appliances, robots and autonomous vehicles."

LG's announcement regarding its mobile business came after it decided to establish a joint venture with global auto parts maker Magna International Inc. to explore electric powertrain systems for the fast-growing electric vehicle (EV) market.

Analysts said LG's recent moves show the company's future business goals.

"LG is expected to accelerate its business focus on home appliances, in which it boasts global competitiveness, as well as automotive and B2B solutions," said Roh Kyoung-tak, an analyst at Eugene Investment Securities. "This signals that the direction and pace of LG's business strategy has changed from the past in various areas." (Yonhap)


A man talking on his phone walks past the logo of LG Electronics during Korea Electronics Show 2016 in Seoul, Oct. 27, 2016. Reuters
A man talking on his phone walks past the logo of LG Electronics during Korea Electronics Show 2016 in Seoul, Oct. 27, 2016. Reuters

LG Electronics can improve its corporate value by restructuring its money-losing mobile business and focusing on future growth engines for a post-pandemic world, analysts here said Saturday.

The company announced Wednesday that the future of its mobile communications unit was open to "every possibility" amid rumors that the company could sell the struggling mobile business.

"We think LG's announcement means they are going to either shut down or sell, or at least scale back on its mobile business," Cho Chul-hee, an analyst at Korea Investment Securities, said.

Analysts said LG's decision to restructure its mobile business is a positive development for shareholders, as this will boost the company's profitability and eventually its value.

LG's mobile business has been in the red since the second quarter of 2015, with an accumulated operating loss of nearly 5 trillion won (US$4.5 billion) as of last year.

"We have to wait for the final decision from LG, but it has become clear that the company is moving towards reducing losses from the mobile business," Park Hyung-wou, an analyst at Shinhan Financial Investment, said.

"The mobile business has been a factor that has been dragging down LG's corporate value."

Shares in LG have spiked after the company hinted at a possible restructuring of its mobile business, surging 12.84 percent Wednesday, and 10.78 percent Thursday, before cooling down with a 4.05 percent decline Friday to close at 177,500 won.

In recent days, local brokerage houses have been raising their target prices for LG, with many setting it between 190,000 won and 230,000 won.

"If LG decides to pull out of the mobile business, its impact on the company's value will be larger than the numbers on paper," Ko Eui-young, an analyst at Hi Investment Securities, said.

"Its mobile communications division has been a discount factor for LG because it lowered the credibility of the company's cash flow estimates with frequent one-off costs and prompted an inefficient allocation of the company's resources."

LG has been striving to turn its mobile business around in recent years, shifting its smartphone production base to Vietnam, while expanding outsourcing deals. Analysts estimate 60 percent of LG's phones are currently produced through original development manufacturing (ODM).

To boost its premium smartphone sales, LG last year launched the Explorer Project, a new mobile category highlighted by a different form factor.

Under the project, the company released the Wing, a dual-screen smartphone with a second rotating screen. For this year, LG is scheduled to launch a smartphone with a rollable OLED display.

But analysts say such efforts are not enough for LG, as it is overshadowed by Samsung Electronics and Apple in the premium segment, while Chinese brands dominate the budget phone sector.

LG's share in the global smartphone market is estimated to be between 1 and 2 percent.

"The smartphone market is no longer in a situation where everyone can grow," said Ko Jung-woo, an analyst at NH Investment Securities. "A company that can be considered a niche player in the market, has less possibilities for potential growth than in the past."

Analysts predicted that LG's first move will be to shrink its mobile division

"Considering its outsourcing deals and contracts with mobile carriers, it will be difficult for the company to withdraw from the mobile business in such a short period of time," said Lee Jong-wook, an analyst at Samsung Securities. "Shrinking the unit also helps the company if it wants to sell the business."

LG may also further shift its mobile business focus to ODM and budget phones, but industry observers note that such a strategy could be risky as it may damage its premium brand image in the TV and home appliance markets.

"In regard to its corporate value, the best scenario will be selling off the business," said Kim Ji-san, an analyst at Kiwoom Securities. "Even if it shuts down or sells the business, the company will keep its core mobile technologies and support its future engines, such as internet of things systems for home appliances, robots and autonomous vehicles."

LG's announcement regarding its mobile business came after it decided to establish a joint venture with global auto parts maker Magna International Inc. to explore electric powertrain systems for the fast-growing electric vehicle (EV) market.

Analysts said LG's recent moves show the company's future business goals.

"LG is expected to accelerate its business focus on home appliances, in which it boasts global competitiveness, as well as automotive and B2B solutions," said Roh Kyoung-tak, an analyst at Eugene Investment Securities. "This signals that the direction and pace of LG's business strategy has changed from the past in various areas." (Yonhap)




X
CLOSE

Top 10 Stories

go top LETTER

The Korea Times

Sign up for eNewsletter