LG CNS: Updated IPO Valuation Analysis

• According to our updated valuation analysis of LG CNS, it suggests a base case implied market cap of 7.4 trillion won, representing target price of 76,383 won per share.

• Our base case valuation target price of 76,383 won is 23% higher than the high end of the IPO price range.

• We lowered our target price by 6%, mainly due to greater political risks arising from the recent cancelled martial law and ongoing impeachment of President Yoon.

Comparable Companies Valuation Analysis

According to our valuation analysis using updated prices of the comps, it suggests a base case implied market cap of 7.4 trillion won, representing target price of 76,383 won per share. The IPO price range is from 53,700 won to 61,900 won per share.

Therefore, our base case valuation target price of 76,383 won is 23% higher than the high end of the IPO price range. Given the solid upside, we have a Positive View of the LG CNS IPO. We lowered our target price by 6%, mainly due to greater political risks arising from the recent cancelled martial law and ongoing impeachment of President Yoon.

To value LG CNS, we used three companies including Samsung Sds (018260 KS), Hyundai Autoever (307950 KS), and Posco DX (022100 KS). Our valuation analysis suggests market cap range of 6.0 trillion won to 9.0 trillion won. Our base case valuation is based on a P/E multiple of 20.8x using our estimated net profit of 356 billion won in 2024.

Our P/E valuation multiple of 20.8x is based on a 25% premium to the comps' multiples in 2024. We used a slightly lower valuation premium (25%) versus 30% previously mainly to reflect greater uncertainty arising from higher political risks in Korea which has resulted in weaker sentiment for IPOs in Korea.

We believe this valuation premium is appropriate due to LG CNS's higher operating margins and ROE. LG CNS had higher sales growth than the comps in 2023 but the comps had slightly higher sales growth on average in 2022 and 2023.

• Sales growth - LG CNS had a sales growth of 12.8% YoY in 2023 versus 5.7% for the comps. The comps had an average annual sales growth of 16.4% in 2022 and 2023 versus 18.2% for LG CNS in the same period. [LG CNS = Comps]

• Operating margin - LG CNS had an average operating margin of 8% from 2021 to 2023. versus 5.9% for the comps in the same period. [LG CNS > Comps]

• ROE - The comps had an average ROE of 12.1% from 2022 and 2023. In the same period, LG CNS had an average ROE of 18.1%. [LG CNS > Comps]