Samsung SDS and LG CNS, the two leading companies in the IT services sector, are both grappling with concerns over sluggish stock performance and the challenges surrounding LG CNS’s upcoming IPO. While Samsung SDS is struggling to see its stock price rise in line with its earnings, LG CNS faces the added pressure of its valuation being inevitably influenced by Samsung SDS’s stock price during the IPO process.
On Oct. 14, it was reported that LG CNS recently submitted a preliminary examination request to the Korea Exchange (KRX). Once the request is accepted, the exchange must notify the company of the results within 45 business days, meaning LG CNS is expected to go public in the first quarter of next year.
The lead underwriters for the IPO are KB Securities, Bank of America, and Morgan Stanley, with joint underwriters including Mirae Asset Securities, Daishin Securities, Shinhan Investment Corp, and JP Morgan. LG CNS plans to issue 96.68 million shares, of which 19.37 million are expected to be offered to the public.
This IPO is a long-standing goal for CEO Hyun Shin-kyun. The company had originally planned to go public in May 2022 but postponed the IPO due to unfavorable market conditions caused by prolonged COVID-19 disruptions, rising interest rates, and the Russia-Ukraine war, which made it difficult to achieve a fair valuation.
Previously, in the S. Korean IT services industry, major affiliates of other large groups, such as Samsung SDS, Hyundai AutoEver, POSCO Future M, and Lotte Innovate, have already listed on the stock exchange.
LG CNS’s market value is projected to be around 7 trillion won ($5.1 billion). However, concerns have been raised about the company’s recent performance.
Last year, LG CNS posted record-breaking sales for the fourth consecutive year, with consolidated revenue reaching $4.1 billion and operating profit of $341.9 million. However in the first half of this year, while revenue rose 4.1% to $1.8 billion, operating profit fell 4% to $125.2 million.
Hyun joined LG CNS in 2017 after working at Accenture and AT Kearney. He became the company’s CTO, was promoted to executive vice president in 2019, and later took on leadership roles in key divisions before being appointed CEO last year.
According to industry insiders, with LG Group Chairman Koo Kwang-mo positioning artificial intelligence (AI) as a future growth driver, Hyun will need to focus on strengthening the company’s technical expertise. If LG CNS fails to demonstrate its growth potential, it may struggle to achieve the desired valuation during the IPO process, especially as competitors like Samsung SDS are expanding into new business areas such as logistics.
The valuation of LG CNS will likely impact the stock price of Samsung SDS, the leader in the S. Korean IT services sector. This is because the IPO price is often benchmarked against publicly traded companies in the same industry.
Samsung SDS’s stock closed at $107.6 on Oct. 11, though it was once as high as $294 before dropping to the $100 range last year. Despite changes in its business portfolio since its 2014 IPO, when its initial offering price was set at around $140.1, the stock has struggled to gain momentum, and its current market capitalization stands at around $8.1 billion.
Samsung SDS CEO Hwang Sung-woo completed his three-year term earlier this year and was reappointed for another term. While his previous tenure focused on laying the foundation for new business areas, his second term comes with the challenge of delivering significant results.
The company’s logistics business has struggled, leading to a decline in performance, and by the end of last year, the number of executive promotions at Samsung SDS was the lowest since 2020. In 2022, Samsung SDS reported consolidated revenue of $9.7 billion and an operating profit of $595.5 million, marking a year-on-year decrease of 23% and 11.8%, respectively.
In the first half of this year, Samsung SDS posted revenue of $4.8 billion, down 1.1% from the same period last year, but operating profit increased by 11.5% to $329.2 million. There are expectations that the company’s performance will improve further in the third quarter.
An industry insider commented, “While growth continues in certain areas such as AI-related solutions and cloud services, the conservative investment approach of the group has slowed overall progress. Despite solid results, the stock price has only seen a modest increase. There’s a need for catalysts like shareholder returns to drive further gains.”
