South Korean IT solutions provider LG CNS has emerged as a major initial public offering contender for next year as it began the listing process on the country’s main Kospi market earlier this month.

Market watchers estimate the firm’s corporate value to reach around 7 trillion won ($5.14 billion), making it the largest IPO deal since LG Energy Solution in January 2022. But they also say that LG CNS’ heavy reliance on business with LG affiliates, along with slowing profitability, are key variables that will decide the success of its market debut.

About two-thirds of LG CNS’ annual revenue comes from LG affiliates. The company has worked to reduce this reliance but it has not yet expanded its clientele to include other public and financial institutions that are speeding up their digital transformations. As of the first half of this year, almost 60 percent of its sales come from its sister firms within the group.

LG CNS says the planned IPO is also aimed at diversifying its business portfolio to expand its growth drivers such as the cloud and artificial intelligence sectors.

It launched a 50-50 joint venture with Indonesia’s Sinar Mas Group last month as part of its global expansion efforts. An anonymous industry source said, “The funds raised by going public will be invested in developing new technologies and expanding the company's global business, which will likely increase external business and profitability as the firm gains more market attention.”

LG CNS’ performance has been unsteady so far this year. Last year, it posted record consolidated sales of 5.6 trillion won and operating profit of 464 billion won, marking four consecutive years of record results. However, its sales increased by 4.1 percent on-year to 2.52 trillion won in the first half, while operating profit fell by 4 percent on-year to 170 billion.

“LG CNS' sales typically rise toward the end of the year, and if the trend continues, the company is expected to achieve stable annual performance this year,” said Uhm Su-jin, an analyst at Hanwha Investment & Securities.

Since the offering price has not yet been determined, LG CNS is often compared with its industry peers, especially Samsung SDS. The stock price of Samsung Group's IT unit has fallen by more than 11 percent since the end of last year, yet it remained unchanged at 149,500 on Wednesday's closing.

Currently, LG CNS is valued on the over-the-counter market at 9.59 trillion won, its shares trading on the same day for 110,000 won on the OTC platform 38 Communications.

LG CNS decided to accelerate the IPO, which had been postponed for over two years, due to an impending deadline in its agreement with financial investors. In early 2020, LG Corp., the group’s holding unit, sold a 35 percent stake in LG CNS to Crystal Korea for about 1 trillion won, on the condition that LG CNS would pursue an IPO within five years, a deadline it will reach next April.

LG Corp. is the largest shareholder of LG CNS with a 49.95 percent stake. LG Group Chairman Koo Kwang-mo also owns 1.12 percent of LG CNS shares.

“Through the IPO, we will enhance our core capabilities in AI, cloud and smart factories within the DX sector, increase shareholder value and grow into a truly global DX company,” an LG CNS official said.