Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Following last week's announcement of a demerger/spinoff, <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> re-evaluation remains unresolved as its underperformance against its listed holdings continues, leading to a decade-low implied stub value - net of all key listed holdings.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/176/021/original/image_95567518231606891715234.png?1606891715" class="editor-image img-responsive" data-smartkarma-image-id="176021"></figure>
The creation of this new holding company as a means to unlocking value via improved efficiencies and affiliate listings, has largely been overshadowed by the EV battery craze, with 33.3%-held  <a href="https://www.smartkarma.com/entities/lg-chem-ltd" target="_blank" data-smartkarma-citation="entities:3583:1" rel="noopener">LG Chem Ltd (051910 KS)</a> up 165% YTD.
More below the fold.

Following last week's announcement of a demerger/spinoff, LG Corp (003550 KS) re-evaluation remains unresolved as its underperformance against its listed holdings continues, leading to a decade-low implied stub value - net of all key listed holdings.

The creation of this new holding company as a means to unlocking value via improved efficiencies and affiliate listings, has largely been overshadowed by the EV battery craze, with 33.3%-held  LG Chem Ltd (051910 KS) up 165% YTD.
More below the fold.

2021 High Conviction: LG Corp's Decade-Low Stub

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

On 26 November, <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> officially announced the formation of another Holdco (tentatively named 'LG NewCo') and the split of 4 companies (out of 13 affiliates) from LG Corp including <a href="https://www.smartkarma.com/entities/lg-international-corp" target="_blank" data-smartkarma-citation="entities:3281:1" rel="noopener">LG International (001120 KS)</a>, <a href="https://www.smartkarma.com/entities/lg-hausys-ltd" target="_blank" data-smartkarma-citation="entities:11613:1" rel="noopener">LG Hausys Ltd (108670 KS)</a>, <a href="https://www.smartkarma.com/entities/silicon-works-co-ltd" target="_blank" data-smartkarma-citation="entities:20670:1" rel="noopener">Silicon Works (108320 KS)</a>, and LG MMA. In addition, Pantos will become an affiliate of LG International. The LG NewCo will be operated separately from LG Corp and the former company will have its own separate BOD and senior professional managers who will oversee the company. The new BOD will be headed up by Koo Bon Joon, the uncle of the current LG Chairman Koo Kwang Mo. Overall, we believe this creation of the LG NewCo will have a positive impact on <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a>. However, the overall impact is likely to be much bigger for LG NewCo than LG Corp. Therefore, once the two stocks start to trade again on May 27th, 2021, there is a good chance that LG NewCo stock price rises higher than LG Corp.In this insight, we have also provided an updated SoTP valuation of LG Corp and a SoTP valuation of LG NewCo.

On 26 November, LG Corp (003550 KS) officially announced the formation of another Holdco (tentatively named 'LG NewCo') and the split of 4 companies (out of 13 affiliates) from LG Corp including LG International (001120 KS), LG Hausys Ltd (108670 KS), Silicon Works (108320 KS), and LG MMA. In addition, Pantos will become an affiliate of LG International. The LG NewCo will be operated separately from LG Corp and the former company will have its own separate BOD and senior professional managers who will oversee the company. The new BOD will be headed up by Koo Bon Joon, the uncle of the current LG Chairman Koo Kwang Mo. Overall, we believe this creation of the LG NewCo will have a positive impact on LG Corp (003550 KS). However, the overall impact is likely to be much bigger for LG NewCo than LG Corp. Therefore, once the two stocks start to trade again on May 27th, 2021, there is a good chance that LG NewCo stock price rises higher than LG Corp.In this insight, we have also provided an updated SoTP valuation of LG Corp and a SoTP valuation of LG NewCo.

LG Group Announces the Formation of LG NewCo & Split of 4 Companies from LG Corp

Equity Bottom-Up

<div class="content-highlight">
In this insight, we provide an updated SoTP valuation analysis on <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a>. We have a positive view of this stock. Our base case valuation analysis suggests an implied price of 120,787 won per share, representing a 60% upside from current levels.
</div>
In addition to its deep discount versus its NAV, there are also 4 key catalysts for the company which are as follows:
<ul>
<li>Potential for higher dividends</li>
<li>IPO of LG Energy Solutions</li>
<li>
Split of LG International and LG Hausys from the LG Group 
</li>
<li> Time to Close to the Gaps With Major Affiliates </li>
</ul>


In this insight, we provide an updated SoTP valuation analysis on LG Corp (003550 KS). We have a positive view of this stock. Our base case valuation analysis suggests an implied price of 120,787 won per share, representing a 60% upside from current levels.

In addition to its deep discount versus its NAV, there are also 4 key catalysts for the company which are as follows:

Potential for higher dividends
IPO of LG Energy Solutions

Split of LG International and LG Hausys from the LG Group 

 Time to Close to the Gaps With Major Affiliates 


It was announced this morning that <a href="https://www.smartkarma.com/entities/lg-international-corp" target="_blank" data-smartkarma-citation="entities:3281:1" rel="noopener">LG International (001120 KS)</a> and <a href="https://www.smartkarma.com/entities/lg-hausys-ltd" target="_blank" data-smartkarma-citation="entities:11613:1" rel="noopener">LG Hausys Ltd (108670 KS)</a> will split from the LG Group. Following this announcement, LG International and LG Hausys shares are up 2.9% and 5.4%, respectively. Koo Bon-Joon, the second eldest member of the Koo brother of the LG Group, is leading this split. Koo Bon-Joon has a 7.7% stake in LG Corp (003550 KS), which is currently worth 992 billion won. Both LG International and LG Hausys' share price are rising because many investors believe that once they are split from the LG Group, they believe that the new owner Koo Bon-Joon could revitalize these companies and that this M&amp;A event is a key signal that Koo Bon-Joon is trying to complete this deal when these two companies are highly undervalued.

It was announced this morning that LG International (001120 KS) and LG Hausys Ltd (108670 KS) will split from the LG Group. Following this announcement, LG International and LG Hausys shares are up 2.9% and 5.4%, respectively. Koo Bon-Joon, the second eldest member of the Koo brother of the LG Group, is leading this split. Koo Bon-Joon has a 7.7% stake in LG Corp (003550 KS), which is currently worth 992 billion won. Both LG International and LG Hausys' share price are rising because many investors believe that once they are split from the LG Group, they believe that the new owner Koo Bon-Joon could revitalize these companies and that this M&amp;A event is a key signal that Koo Bon-Joon is trying to complete this deal when these two companies are highly undervalued. 

LG International & LG Hausys To Split from the LG Group

After the market close on 27 October, the Korea National Pension Fund Service (NPS) announced that it will likely to vote against LG Chem's plan to separate the rechargeable battery business. On 16 September, LG Chem announced its plan to separate the rechargeable battery business and since then its share price has declined 13% (15 September to 27 October). In our view, this is perhaps the biggest activist move by the NPS this year on a Korean large-cap company in 2020. <div class="content-highlight">Overall, we believe there is a slightly higher chance of winning for NPS and other investors that are voting against the demerger plan, although it will be a close call. In addition, in the case that the company fails to get enough votes for the demerger, we believe this will have a favorable impact on LG Chem's share price. In addition, the company may try to find other ways to realize higher value for the entire LG Chem shareholders but at the same time conduct a different way to spin-off the battery business.</div>

After the market close on 27 October, the Korea National Pension Fund Service (NPS) announced that it will likely to vote against LG Chem's plan to separate the rechargeable battery business. On 16 September, LG Chem announced its plan to separate the rechargeable battery business and since then its share price has declined 13% (15 September to 27 October). In our view, this is perhaps the biggest activist move by the NPS this year on a Korean large-cap company in 2020. Overall, we believe there is a slightly higher chance of winning for NPS and other investors that are voting against the demerger plan, although it will be a close call. In addition, in the case that the company fails to get enough votes for the demerger, we believe this will have a favorable impact on LG Chem's share price. In addition, the company may try to find other ways to realize higher value for the entire LG Chem shareholders but at the same time conduct a different way to spin-off the battery business.

NPS Takes a Stand Against LG Chem's Plan to Separate the Battery Business

South Korea

LG Corp. is a holding company, which operates subsidiaries including LG Electronics, LG Household & Health Care, LG Chem Ltd., and Dacom Corp. The Company's main business areas are electronics, chemicals, and household products manufacturing and telecommunications services.

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LG Corp (003550 KS)

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Douglas Kim

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