LG Sangsa, Lowered Earnings Expectations Due to COVID-19 Impact... Target Price Down 23%

[Asia Economy Reporter Minji Lee] LG Corporation is expected to post weak results in the second quarter due to concerns over declining performance in industrial materials and logistics businesses caused by the spread of the novel coronavirus (COVID-19). On the 25th, NH Investment & Securities maintained a neutral investment rating on LG Corporation and set a target price of 14,900 KRW, down 23% from the previous level.

In the first quarter, LG Corporation recorded sales of 2.4498 trillion KRW and an operating profit of 49.9 billion KRW, down 4% and 6% respectively compared to the same period last year.

By segment, the logistics business posted an operating profit of 37 billion KRW, a 22% increase year-on-year. The operating profit margin expanded to 3.5% due to a temporary surge in urgent shipments caused by the spread of COVID-19 and improvements in warehouse logistics profitability. The industrial materials and solutions business recorded 7.9 billion KRW, down 36% year-on-year, reflecting some impact from product price declines and volume decreases due to COVID-19. The energy and farm business segment posted 5 billion KRW, down 53% during the same period, affected by weak coal prices despite increased coal production at GAM coal mines.

Dongyang Kim, a researcher at NH Investment & Securities, said, “Although first-quarter results declined compared to the same period last year, they were higher than market expectations. However, operating profit in the second quarter is estimated to decrease by 31% year-on-year due to the impact of COVID-19.”

LG Corporation announced plans to dispose of idle assets and repurchase treasury shares amid weak stock prices caused by poor performance. The company plans to repurchase about 100 billion KRW worth of treasury shares, equivalent to 20% of the current market capitalization, by December.

Researcher Dongyang Kim said, “The business structure concentrated on trading, logistics, and energy is exposed to reduced trade triggered by COVID-19 and increased volatility in energy prices, which has lowered earnings visibility. To improve investor sentiment, it is necessary to improve energy business performance through a rebound in coal prices and to concretize the listing of Pantos.”

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