Vehicle components division logs record Q3 performance, expanding B2B footprint to curb appliance dependency
Data center cooling orders top 3 trillion won; ramping up capital expenditure including U.S. production base
LG Electronics (066570) is accelerating its push into business-to-business (B2B) markets, expanding its footprint from automotive electronics to data center cooling systems. Bolstered by stable profitability in its vehicle components division and a surge in cumulative orders for data center cooling solutions exceeding 3 trillion won, the company is successfully broadening its revenue streams beyond traditional home appliances and TVs.
On October 28, LG Electronics reported third-quarter consolidated revenue of 23.8241 trillion won and an operating profit of 781.9 billion won, up 8.9% and 13.5%, respectively, from the same period a year earlier. Cumulative operating profit for the first three quarters of the year crossed the 4-trillion-won threshold for the first time, reaching 4.0347 trillion won.
While the third-quarter operating profit fell short of the market consensus of approximately 1 trillion won, profitability varied across business divisions. The Vehicle Component Solutions (VS) Company posted record third-quarter results with revenue of 2.8261 trillion won and an operating profit of 190.3 billion won. The TV business also secured an operating profit of 146.7 billion won, driven by cost-efficiency measures.
Propelled by robust sales of vehicle infotainment products and optimized manufacturing costs, the vehicle components division maintained an operating margin in the mid-single digits or higher for the seventh consecutive quarter. Third-quarter B2B revenue rose 3.4% year-on-year to 6.1 trillion won, accounting for 35% of total revenue (excluding LG Innotek).
Beyond automotive to data centers: cooling orders surpass 3 trillion won
LG Electronics’ cumulative order backlog for data center cooling solutions expanded significantly from roughly 600 billion won in the first half of the year to over 3 trillion won by the end of the third quarter. The order volume expanded fivefold in a single quarter, propelled by major long-term supply agreements.
A notable milestone is the supply contract for a 5-gigawatt (GW) cooling solution secured with Air Control Concepts, a North American data center infrastructure firm. While 5GW represents the capacity of the data centers slated for cooling, the exact monetary value of the contract remains undisclosed.
Kim Chang-tae, Chief Financial Officer (CFO) of LG Electronics, commented on the deal during the October 28 earnings conference call, stating, "This contract is not a one-off project, but a long-term supply agreement that secures stable revenue over multiple years."
In addition to its conventional large-scale chillers, LG Electronics is expanding its product portfolio to include liquid cooling equipment such as Coolant Distribution Units (CDUs). To meet surging order demand, the company is investing approximately 220 billion won. Plans include establishing a new production base in Virginia, USA, by 2027, alongside new production lines in Pyeongtaek and Changwon, South Korea.
A time lag persists between order growth and tangible earnings expansion. The ES Business Company, which oversees HVAC (heating, ventilation, and air conditioning) systems, posted a third-quarter operating profit of 87.2 billion won, weighed down by sluggish domestic market conditions, investments in new businesses, and rising labor costs.
Brokerages revise target prices higher; Q4 profitability pressures linger
On October 29, securities firms issued positive assessments regarding the profitability turnaround in the vehicle components business and the growth potential of the data center cooling venture. SK Securities raised its target price for LG Electronics from 180,000 won to 195,000 won, while IBK Investment & Securities hiked its target from 180,000 won to 200,000 won.
While acknowledging improved cost structures in the TV division and profit recovery in automotive components, IBK Investment & Securities noted that it will take time for new businesses to make meaningful contributions to the bottom line.
In the fourth quarter, profitability pressures are expected to mount due to seasonal off-peak conditions for home appliances and TVs, compounded by rising raw material and component prices. IBK Investment & Securities suggested that operating profit could hover near the break-even point.
LG Electronics plans to scale up its data center cooling equipment deliveries starting next year. With the vehicle components division now generating stable profits, the focal point going forward will be how rapidly large-scale cooling system orders translate into actual revenue and earnings.
