(C) ET Retail

SEOUL - LG Electronics (LGE) is expected to stage a significant earnings recovery starting next year, despite an anticipated weak performance in the fourth quarter of the current year. On December 11, Daishin Securities raised its target price for the South Korean tech giant to KRW 130,000 from the previous KRW 105,000, citing strong growth prospects driven by its high-value B2B businesses, especially in Heating, Ventilation, and Air Conditioning (HVAC), and an undervalued stock price.

The firm's analyst, Park Kang-ho, projected LGE's 2026 annual operating profit to reach KRW 3.8 trillion (approximately $2.9 billion USD*), marking a robust 45.9% increase from this year's forecast. Crucially, Park highlighted that the company’s stock remains significantly undervalued with a 2026 price-to-book ratio (PBR) of just 0.7 times, which is at a historical low. This suggests a strategy focusing on stock price upside, rather than risk of decline, is valid.

HVAC and B2B Expansion Fueling Valuation Upgrade

A primary driver for the increased valuation is the expected rapid growth of LGE's Heating, Ventilation, and Air Conditioning (HVAC) business, which falls under the Eco-Solution (ES) division. LGE has been aggressively pivoting to the B2B sector, and the ES unit is seeing increased order flows from data centers and large technology companies for specialized solutions like chillers and other HVAC systems. The company is particularly focusing on high-efficiency solutions, including liquid-cooling systems for AI data centers, aiming to achieve a 20 trillion KRW (approx. $15.3 billion USD) revenue target for its HVAC business by 2030, a move that is expected to double its current scale faster than the market average. Increased HVAC orders are anticipated to elevate the company's overall valuation.

Furthermore, the Home Appliance & Air Solution (H&A) business, which handles consumer electronics, is also set for a major profitability boost. The adoption of AI features and an expanded focus on the premium segment are forecast to push the H&A unit's operating profit margin to 5.9% in 2026, projected as its highest profitability level since 2024.

Robot Technology and Enhanced Shareholder Returns

LGE's growing competitiveness in the robotics sector is another key investment point. The company is pursuing its own robotics business while leveraging the capabilities of its affiliated group companies like LG Innotek, LG Display, and LG Energy Solution for core components. Synergies are also expected from strategic investments in specialized robotics firms such as Robostar and Robotis. LGE has also structured its robot business into a two-track strategy, focusing on commercial robots through its subsidiary Bear Robotics and home-use robots through its H&A division, with an overall goal of making robotics a future growth engine.

In terms of shareholder returns, the increasing financial stability across the LG Group is set to benefit LGE. The net income for the next year is projected to rise by 31.9% year-on-year, thanks to improved equity-method gains, notably from LG Display's earnings recovery. The company's enhanced shareholder return policy aims for a payout ratio of 25% or more of consolidated net profit (excluding non-recurring gains) and a minimum annual dividend of KRW 1,000 per share of common stock (first implemented in 2024 with semi-annual payouts). The potential use of cash inflow from the listing of the company's India subsidiary for additional dividends is also a positive factor, suggesting the final dividend amount may exceed the minimum guaranteed floor.

Fourth Quarter Setbacks Anticipated

Despite the optimistic outlook for 2026, LGE is expected to report a temporary setback in the fourth quarter. The brokerage forecasts a separate operating loss of KRW 401.8 billion (approx. $308 million USD*) for the period, a swing to a deficit. This loss is mainly attributed to one-off costs associated with organizational efficiency efforts, including voluntary retirement programs and expenses related to the recent CEO change, which are viewed as necessary steps for the company’s strategic leap forward in 2026.

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