Lotte Innovate Expects Higher Valuation Reappraisal on Data Center Performance

Lotte Innovate said it is building the basis for improved market valuation by continuously securing external references in its data center design, build and operate (DBO) business. The company won an outsourced operations contract for the Ansan data center, whose developer is IGIS Asset Management. Previously, Lotte Innovate was selected in February this year as the DBO operator for an about 10MW data center project led by IGIS Asset Management, and cooperation expanded with the addition of operations for another 40MW data center about six months later.

Hanwha Investment & Securities maintained its investment opinion of 'BUY' on Lotte Innovate on the 4th and raised its target price to KRW 30,000. It also raised its operating profit forecast for this year by 5% from the previous estimate and its operating profit forecast for next year by 7%. Based on this trend, Lotte Innovate said expectations are growing in the brokerage industry for a revaluation of its corporate value.

Lotte Innovate said it is restructuring its business with a focus on profitability. It added that if additional results emerge from its data center, AI and EV charging new businesses, it could narrow the valuation gap versus peers.

The company emphasized that this contract win marks an opportunity to expand its roughly 20 years of accumulated data center operations capabilities from within the group to the external market. It also said it is broadening its data center business scope from design and construction to the entire range, including operations.

The company said the DBO business is not limited to design and construction revenue. It also said DBO can secure long-term recurring revenue through operations and maintenance after completion, and that this gives it a different earnings structure from existing SI businesses.

At the same time, data center investment continues to rise on the back of the spread of AI. If external DBO references accumulate, it could also emerge as a new growth pillar.

Profitability in the core business is also improving steadily. Hanwha Investment & Securities forecast operating profit of KRW 45.2 billion for this year, up 44% year on year. It projected operating profit of KRW 52.1 billion for next year.

Its subsidiary EVSIS is pushing to build out domestic EV charging infrastructure and expand into overseas markets. However, performance pressure persisted in the first half due to the impact of global projects and delays in domestic public-sector orders. Since then, after winning a domestic public project in June and a new U.S. order in July, the possibility of improved EVSIS performance in the second half has widened.

Lotte Innovate is advancing the commercialization of physical AI based on the group’s industrial sites. Physical AI goes beyond generative AI and moves toward integration with robots, and Lotte Innovate is also pursuing a service robot as a service (RaaS) business. It is also responding to demand for AX transformation based on its experience operating IT systems for affiliates, and the company is seeking to expand business opportunities through these businesses.

Meanwhile, Hanwha Investment & Securities analyst Kim So-hye identified the perception of SI companies with a high share of revenue from within the group as a factor behind the existing valuation discount. Kim said the latest data center contract win serves as a reference point that eases the perception of being a 'group-internal SI company,' and forecast that the discount will gradually narrow.

Source: TECHWORLD · Lee Gwang-jae
Original: https://www.epnc.co.kr/news/articleView.html?idxno=406553

References

• https://www.epnc.co.kr/news/articleView.html?idxno=406553