LG Electronics 2Q26 earnings beat expectations; CDU progress positive but robotics outlook remains immature; maintain Neutral

Overview

This report reviews JPMorgan's assessment following LG Electronics' 2Q26 earnings call. The company's 2Q26 revenue and operating profit both exceeded expectations, mainly due to improvements in the home appliance/media businesses, cost controls, sports-event demand, and a US tariff refund. The report also evaluates the company's progress in shifting from traditional B2C businesses toward AI data center cooling CDU and robotics-related manufacturing.

Core views

The core view is that CDU orders and NVIDIA certification provide relatively clear support for medium- to long-term growth, particularly potentially driving the ES division in 2027-2028. However, the robotics business remains at an early stage. Although actuator pilot production and data factory plans are progressing, the business model, order visibility, and competitive landscape remain insufficient to support a positive re-rating. Therefore, following the decline in the 2H26 earnings trajectory and a pullback in AI/robotics thematic trading, the report recommends that investors remain on the sidelines for now and maintains a Neutral rating.

Analysis framework

The report assesses the company based on the 2Q26 earnings breakdown, 3Q26 management guidance, business-segment margins, CDU order and certification progress, robotics commercialization visibility, and historical valuation multiples; the target price is based on a mid-cycle multiple of FY27E core NOPAT per share.

Methodology notes

• Valuation methodsMid-cycle NOPAT multiple valuation

  17x FY27E core NOPAT per share

  The Jun-27 target price of W190K is based on 17x FY27E core NOPAT per share, reflecting normalization of AI data center-grade cooling and core business cyclical earnings, while not yet assigning a growth premium to the robotics business.

• Earnings analysisSegment operating margin analysis

  Compare revenue growth and OPM across HS, MS, VS, and ES divisions

  The report uses year-on-year revenue, OPM, and management guidance for each business division to explain the sources of the 2Q26 beat and the 3Q26 outlook.

• Theme validationTracking order and certification progress

  CDU orders, NVIDIA certification, actuator pilot production

  The W600bn CDU orders, NVIDIA certification, and robotics actuator pilot production are used to assess the credibility of new-business commercialization, with stronger evidence for CDU than for robotics.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• LG Electronics (066570.KS)

  Covered company

  Strengths

  2Q26 earnings beat expectations; CDU received NVIDIA certification; 1H26 CDU orders of W600bn; improved MS and VS margins; medium- to long-term growth potential in WebOS.

  Weaknesses

  Declining 2H26 earnings trajectory; robotics business is at an early commercialization stage with an unclear strategy; logistics, raw material, and panel costs could continue to pressure margins.

  Comparison

  The stock initially rose on robotics expectations YTD but retreated significantly from its June 1 peak; the report believes focus should shift from robotics to CDU and MS margins.

  Risks

  Upside risks include H&A margin expansion, WebOS customer diversification, an EV market recovery, and additional vehicle-business design wins; downside risks include logistics and raw material costs, rising TV panel prices, a delayed EV recovery, and a slowdown in new vehicle-component orders.

• LG Magna

  Related subsidiary/joint venture business

  Strengths

  The Mexico plant has operated stably since starting production in 2023 and contributes more than 40% of sales; Hungary is a key localization base for Europe and is expected to begin mass production in Jan-27.

  Weaknesses

  Exposed to fluctuations in EV demand, regional dependence, and customer concentration.

  Comparison

  The company is expanding its non-North American revenue base through orders from Asian and European OEMs.

  Risks

  A delayed EV market recovery and changes in promotional and incentive policies could affect orders and profitability.

Key data

• 2Q26 salesW23.8tnCompany disclosure; 2Q26 revenue.
• 2Q26 operating profitW1.58tnOPM was 6.6%, above expectations.
• One-off net tariff refund benefitApproximately W300bnManagement stated that the US tariff refund was approximately W300bn after deducting one-off expenses.
• CDU orders1H26 W600bnManagement stated that the orders exclude large technology companies and could reach several trillion Korean won by year-end.
• Current priceW147,500As of 30 Jul 26.
• Target priceW190,000Jun-27 target price; Neutral rating.
• Implied target price upsideApproximately 28.8%Calculated based on the W190,000 target price and W147,500 current price.
• AI data center capacity assumption25GW in 2026 to 70GW in 2031Management stated that more than 60% will be in North America.

Impact & implications

For investment implications, LGE's near-term earnings quality is supported by the one-off refund and cost controls, but the key drivers of a valuation re-rating will shift from the robotics theme toward CDU order fulfillment, recognition of AI data center cooling revenue, normalization of MS margins, and VS order quality. If orders from major CDU customers materialize, the ES division's growth momentum could strengthen in 2027-2028; if robotics lacks visible orders, related thematic valuations could continue to decline.

Risks

• Higher raw material and logistics costs could pressure margins.
• Continued strength in TV panel prices could further compress hardware profitability.
• A delayed EV market recovery or a slowdown in new orders for the vehicle-components business.
• Intensifying competition in robotics, an unclear commercial strategy, and insufficient visibility into major orders.
• Tariffs, geopolitical developments, and freight-rate volatility in 2H26 could still affect earnings.

What to watch

• New CDU orders in 2H26, particularly whether orders from large technology company customers materialize.
• The pace of CDU revenue recognition and its contribution to ES division growth in 2027-2028.
• Robotics actuator mass production, partner coverage, and verifiable orders.
• Whether MS margins can sustain their improvement amid rising memory costs.
• The VS division's high-single-digit OPM guidance and operational progress at LG Magna's Mexico and Hungary facilities.
• North American AI data center cooling demand and progress in CSP channel partnerships.