IoT Adoption And AI Alliances Will Shape Future Opportunities

Key Takeaways

• Growth in IoT, digital content, and partnerships is driving service revenue and expanding premium offerings for higher revenue per user.
  
• Investments in operational efficiency and shareholder-friendly actions are supporting profit growth and improved margins.
  
• Domestic market saturation, high infrastructure costs, and global digital competitors constrain growth and profitability, while limited international expansion exposes the company to increased regulatory and revenue risks.

Catalysts

Provides various telecommunication services primarily in South Korea.

• Accelerating adoption of IoT and connected devices is driving strong growth in IoT and MVNO subscriptions (both up over 20% YoY), positioning LG Uplus to benefit from higher data usage and sustained increases in ARPU, which should support long-term service revenue growth.
  
• Rising demand for digital content and streaming is reflected in increased Internet revenue (up 6.9% YoY) and a higher mix of gigabit internet and value-added IPTV/content bundles, suggesting ongoing opportunities to upsell customers to premium plans and expand revenue per user.
  
• Strategic partnerships with global technology leaders (Google for AI and AWS for cloud) enhance LG Uplus’s ability to deliver competitive, AI-driven B2C and B2B services, opening up new high-margin growth verticals that could strengthen both earnings and net margins.
  
• Investments in digital transformation and operational efficiency, including AI-driven productivity boosts and streamlining underperforming business lines, are reducing cost base and supporting profit growth that outpaces revenue growth, improving overall operating margins and long-term profitability.
  
• Planned share buybacks and treasury share cancellation, supported by stronger cash flow and net profit growth (operating profit up 15.6% YoY, net profit up 24.6% YoY), create potential for higher EPS and signal management’s commitment to increasing shareholder returns.

LG Uplus Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming LG Uplus's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.7% today to 4.5% in 3 years time.
• Analysts expect earnings to reach ₩707.1 billion (and earnings per share of ₩1643.57) by about May 2028, up from ₩406.6 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as ₩825.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, down from 13.7x today. This future PE is lower than the current PE for the KR Telecom industry at 23.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.71%, as per the Simply Wall St company report.

LG Uplus Future Earnings Per Share Growth

Risks

• South Korea's saturated telecom market, combined with sluggish overall market growth as acknowledged by management, constrains new subscriber acquisition and limits long-term service revenue growth opportunities.
  
• Heavy capital expenditure (CapEx) requirements for infrastructure projects like the new Paju data center and next-generation networks (e.g. 5G, future 6G) continue to pressure free cash flow and may elevate debt, which could hurt net margins and balance sheet health over the long run.
  
• Reliance on offering additional value (such as content bundling, OTT partnerships, and premium plans) to stimulate ARPU may be undermined by competition from global digital platforms (OTT, messaging apps), heightening the risk of revenue stagnation as these platforms increasingly disintermediate traditional telco value.
  
• Continued operational cost improvements are critical to offset slow revenue growth, but there is ongoing risk from rising regulatory scrutiny around data privacy and security, which could increase compliance expenses and potentially impact earnings.
  
• The company’s limited international expansion efforts mean it remains highly exposed to domestic market and regulatory risks; its long-term earnings and revenue diversification potential may be constrained if global expansion plans for services like ixi-O do not succeed.

Valuation

• The analysts have a consensus price target of ₩14008.0 for LG Uplus based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩19000.0, and the most bearish reporting a price target of just ₩10000.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩15623.6 billion, earnings will come to ₩707.1 billion, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of ₩13000.0, the analyst price target of ₩14008.0 is 7.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.