2Q26 slight miss: Lower PO, but reiterate Buy

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LG CNS

2Q26 slight miss: Lower PO, but reiterate

Buy

Reiterate Rating: BUY | PO: 125,000 KRW | Price: 58,200 KRW

2Q26 sales/OP slight miss: expect cloud revenue setback

01 August 2026

LG CNS, the IT services arm of LG Group, delivered weaker-than-expected 2Q results:

sales W1.52tn (+4% YoY) and OP W128.0bn (-9% YoY; OPM 8.4%), vs consensus:

W1.56tn and W141.0bn and our estimate: W1.61tn and W153.0bn, respectively. Key

contributors should be decelerating YoY sales growth in all three businesses: cloud & AI

(+4%), DBS (+6%), and smart engineering (+3%). That said, we still consider the 2Q

results as above mid-cycle. We also note upbeat non-operating income (certain non-core

assets/investments sale), resulting in NP meeting/exceeding our estimate/consensus.

Equity

Cut PO to W125k (21x P/E); still 50%+ upside potential

We revise down our 2027E-28E EPS by 5-8% primarily due to our lower sales estimates

(5-8% cut), more specifically smart factory related (mostly captive demand), while

making no changes to our OPM assumptions (~10% likely to persist). Accordingly, we

lower our PO to W125,000 (21x 2027-28E P/E) from W150,000 (23x). That said, our new

PO still implies 50%+ upside potential. We reiterate our Buy rating.

Estimates (Dec) (W)

Net Income (Adjusted - bn)

EPS

EPS Change (YoY)

Dividend / Share

Free Cash Flow / Share

Valuation (Dec)

P/E

Dividend Yield

EV / EBITDA*

Free Cash Flow Yield*

2024A

365

4,180

10%

1,672

7,787

2025A

438

4,563

9%

1,850

3,432

2026E

486

5,018

10%

2,107

2,128

2027E

549

5,662

13%

2,435

5,904

2028E

627

6,472

14%

2,912

6,363

13.9x

2.9%

7.6x

12.0%

12.8x

3.2%

6.8x

5.8%

11.6x

3.6%

6.0x

3.7%

10.3x

4.2%

5.3x

10.1%

9.0x

5.0%

4.7x

10.9%

* For full definitions of iQ method SM measures, see page 14.

Key Changes

(W)

Previous

Current

Price Obj.

150,000

125,000

2026E EPS

5,047

5,018

2027E EPS

5,938

5,662

2028E EPS

7,042

6,472

799,432

772,057

2027E EBITDA (m)

920,722

885,606

2028E EBITDA (m)

1,067,771

994,626

2026E EBITDA (m)

Simon Woo, CFA >>

Research Analyst

Merrill Lynch (Seoul)

Matt Shin >>

Research Analyst

Merrill Lynch (Seoul)

Dai Shen >>

Research Analyst

Merrill Lynch (Hong Kong)

Stock Data

Price

58,200 KRW

Price Objective

…