LG Uplus: positive on captive customers, seller’s market advantages

The author is an analyst at KB Securities. He can be contacted at [email protected] — Ed.

Hold BUY, target price 19,000 KRW

We are maintaining BUY and TP of KRW 19,000 for LGU based on the visibility of B2B earnings, the benefits of stabilizing the B2C market and the expectation of a more favorable shareholder return policy. We expect B2B earnings growth to become a major factor heading into 2H22; Enterprise Infrastructure (e.g. IDC, Solution, Enterprise Line) generated revenue of KRW 362.4 billion in 1Q22 (+6.7% YoY; +10.7% YoY annual based on 2021).

IDC: Seller’s Market Should Improve Revenue Growth

IDC reported 2021 revenue of KRW 258.4 billion (+13.4% YoY; 1Q22 revenue at KRW 63.8 billion). The total area of ​​IDCs operated by LGU is ~269k m2 (71k m2 in terms of server space). The IDC market is quickly becoming a seller’s market; higher prices should fuel sales growth.

IDC’s strategy focuses on securing captive customers (e.g. Google Cloud)

Pyeongchon’s second data center, which rivals the capacity of Pyeongchon’s megacenter, will add 40,000 m2 of server space when completed in 3Q23. LGU’s IDC strategy of securing captive customers seems viable. Media reports (Digital Daily, August 15, 2021) suggest that Google Cloud has already signed an agreement for the use of server space equivalent to half of the server space of the second center in Pyeongchon.

Smart factory and smart mobility companies continue rapid growth

The rapid growth of Enterprise Infrastructure’s smart factory and smart mobility business is expected to boost the sense of B2B earnings visibility. On their 1Q22 targets, smart factory and smart mobility achieved 117% and 110% respectively.