💼 This Week's LS Fundamental Check: Between an AI Order Jackpot and a Value Trap - 2026.07.14

Hello, LS shareholders. This is Peanut, here to scrutinize fundamentals and valuations. The narrative around AI data center orders centered on LS ELECTRIC is heating up. But what do the numbers behind this flashy news flow really tell us? Let's break it down through the lens of PER and PBR.

💼 Flashy North American Orders and Rosy Analyst Outlooks: Are They Verifiable?

Recently, articles about LS ELECTRIC's North American AI data centers have been pouring in. They signed a 319,000,000,000 KRW contract with Bloom Energy and are reportedly eyeing trillion-won distribution orders ^[1]. They have secured a backlog of over 3 years and are accelerating capacity expansion focused on the North American market ^[4]. Technical alliances are also active. They agreed to co-develop a direct current (DC) 800V-class distribution system for AIDCs with LG Uplus ^[5], and signed an MOU with the German semiconductor company Infineon for next-generation power semiconductor and system technology development ^[6]. We can also see efforts to strengthen technical substance. At the recently held 2026 Power Electronics Conference, they introduced an algorithm that pre-suppresses overvoltage when driving inverters for vacuum pumps, presenting a practical alternative to increase the stability of future power infrastructure ^[7]. Furthermore, the completion ceremony of the DC Factory and the settlement of labor-management negotiations without bargaining are positive factors for production stability ^[8]. In the brokerage world, the atmosphere is one of maintaining or raising target prices to 300,000 KRW, citing that power business revenue will grow by 30.2% year-on-year ^{[3] [9]}. They were also cited as an alternative investment destination for institutions during the semiconductor stock slump in July ^[9]. However, what is the actual market reaction? Looking at today's (14th) closing price, it finished at 292,000 KRW, down 3.79%. Trading volume was 151,616 shares; while institutions net purchased 1.61 billion KRW, foreigners net sold 6.43 billion KRW, weighing down the stock price. In a situation where supply and demand are tangled despite glowing analyst reviews and record-breaking order news, we must question whether the current PER multiple is justified.

⚠️ Financial Risks and Governance Issues Hidden Behind the Bullish Sentiment

What we must always be wary of is the cash flow behind profit growth. Along with the issue of the delay in LS MnM's listing, problems such as worsening cash flow and increasing debt due to LS ELECTRIC's North American facility investments are being pointed out ^[2]. Large-scale CAPEX (capital expenditure) inevitably leads to an increase in debt, which poses a risk of placing a serious burden on the EV/EBITDA multiple. Some analyses suggest that a sophisticated financial strategy is urgent to prevent direct cash outflow at the holding company level ^[2]. If external growth does not lead to free cash flow (FCF) generation, it may just be an empty shell. Additionally, governance issues need to be checked. Chairman Koo Ja-yeol and Chairman Koo Ja-kyun gifted E1 shares to their children and grandchildren; notably, Chairman Koo Ja-yeol transferred 13.9 billion KRW worth of shares to his three-year-old eldest grandson ^{[10] [11]}. While there is no change in the owner family's total stake, with the stake of the largest shareholder and related parties in the LS holding company confirmed at 33.11% ^[11], it is necessary to carefully monitor how such share transfers will affect the group's overall capital allocation policy and shareholder returns in the future. Can this truly lead to an improvement in PBR for minority shareholders?

📉 Short-to-Mid-Term Swing Strategy: Beware of the Value Trap

In this situation, what position should we take? Peanut believes we should be wary of the possibility of a financial value trap hidden behind the flashy AI order narrative. Let's definitely look at a bearish scenario even amidst the bullish atmosphere. There is a risk that increased debt from North American facility investments and short-term cash flow deterioration could act as a burden on the holding company's dividend policy or consolidated earnings. If the power equipment cycle hits a peak-out faster than the market expects, or if the profit recovery speed is delayed compared to the increased CAPEX, the current valuation may be difficult to maintain. From a short-to-mid-term swing perspective, rather than blind expectation, thorough verification is needed to see if the increasing debt undermines fundamentals. If positive order news has already been sufficiently priced into the stock, serious consideration is needed as to whether the current range is a candidate for profit-taking.

Always doubt the numbers and respond calmly. I'll be back with another sober analysis in the next newsletter.

📰 Reference News (11)

1

LS, HD Hyundai, Hyosung eye 'trillion-won' distribution order jackpot for North American AI DCs

네이버뉴스 · 2026.07.14

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2

LS MnM IPO hit by roadblock... Clouds over Chairman Koo Ja-eun's 'switchboard' new business

네이버뉴스 · 2026.07.14

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3

[Morning Report] "LS ELECTRIC, virtuous cycle of orders... target price maintained at 300,000 won"

네이버뉴스 · 2026.07.14

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4

LS ELECTRIC, Hyosung Heavy Industries, HD Hyundai Electric

네이버뉴스 · 2026.07.14

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5

[Telecom AIDC Strategy] ③ LG Uplus, the only one in the Seoul metropolitan area

네이버뉴스 · 2026.07.14

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6

LS ELECTRIC signs MOU with Infineon... Developing core DC power technologies - FA Journal

FA저널 · 2026.07.14

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7

[2026 Power Electronics Conference] Realistic future power concerns revealed in poster session... Academic-industrial bridge role

네이버뉴스 · 2026.07.14

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8

LS ELECTRIC holds DC Factory completion ceremony... 'No-negotiation' labor agreement reached - Tongshin Ilbo

통신일보 · 2026.07.13

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9

Institutional vacancy created amidst semiconductor slump in July

네이버뉴스 · 2026.07.14

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10

LS's Koo Ja-yeol, Ja-yong, and Ja-kyun gift E1 shares to children and grandchildren... No change in total owner family stake

네이버뉴스 · 2026.07.13

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11

Koo Ja-yeol gifts 13.9 billion won in E1 shares to three-year-old grandson... Strengthening Koo Dong-hwi's position

네이버뉴스 · 2026.07.14

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