[Click eStock] "LG Household & Health Care, Q1 Earnings Surprise... Target Price Raised"

Korea Investment & Securities Issues 'Buy' Investment Opinion... Target Price Raised from 1.56 Million KRW to 1.67 Million KRW

LG Household & Health Care's brand 'Whoo' (Photo by Asia Economy DB)

[Asia Economy Reporter Kum Bo-ryeong] LG Household & Health Care posted an earnings surprise in the first quarter despite the novel coronavirus disease (COVID-19).

According to Korea Investment & Securities on the 24th, LG Household & Health Care's first-quarter sales reached 1.9 trillion KRW, and operating profit was 334 billion KRW. These figures represent increases of 1.2% and 3.6% year-on-year, respectively, with operating profit exceeding consensus estimates by 25%.

Cosmetics sales and operating profit were 1.07 trillion KRW and 220 billion KRW, down 6% and 10% year-on-year, respectively, affected by COVID-19, but profitability was higher than expected. Household goods sales increased by 19% to 479 billion KRW, and operating profit rose 50% to 65 billion KRW. The beverage division also saw operating profit increase by 45% compared to the previous year.

Na Eun-chae, a researcher at Korea Investment & Securities, said, "Profitability was a surprise, resulting from a combination of product mix improvement, cost management, and a special demand for household goods. Firstly, the decline in duty-free and local Chinese sales was limited to 16% and 6%, respectively. The duty-free industry was expected to shrink by 25% in the first quarter, so these results are better than expected, and Chinese cosmetics retail sales are also estimated to have significantly exceeded expectations." She added, "The sales decline of the most profitable Whoo brand was limited to 8%, and thanks to reduced marketing expenses in China, the decrease in cosmetics profit was contained to 10%. During the recession, reseller demand was concentrated in duty-free stores, and online demand was focused on Whoo in China."

Researcher Na continued, "Excluding the impact of New Avon, the operating profit margin of household goods increased by about 5 percentage points compared to the previous year. It is estimated that there was strong demand for hygiene products such as hand wash due to the premium product mix expansion and COVID-19 special demand in the first quarter." She added, "Also, the effects of household goods restructuring from 2018 to last year have become visible, highlighting overall profit and loss management capabilities." However, ongoing uncertainty in the operating environment remains a concern.

Korea Investment & Securities has given LG Household & Health Care a 'Buy' investment rating. The target price was raised from 1.56 million KRW to 1.67 million KRW. The closing price on the 23rd was 1.444 million KRW.

This content was produced with the assistance of AI translation services.