Q1 Earnings Surprise for LG Electronics... What About Q2?

[Asia Economy Reporter Koh Hyung-kwang] LG Electronics' operating profit for the second quarter of this year is expected to decrease by nearly 40% compared to the previous year. The spread of the novel coronavirus infection (COVID-19) was cited as the direct cause.

Hana Financial Investment forecasted on the 2nd that LG Electronics' sales and operating profit for the second quarter of this year would be 12.7362 trillion KRW and 406.6 billion KRW, respectively. These figures represent decreases of 19% and 39% compared to the same period last year.

Researcher Kim Rok-ho of Hana Financial Investment explained, "At the beginning of the year, this quarter was expected to benefit from the peak air conditioner season and sports events, but due to the direct impact of the global spread of COVID-19, poor performance is inevitable. Due to restrictions on population movement and store closures, demand for IT sets such as home appliances, TVs, and smartphones is uncertain." He added, "It is regrettable that the impact of COVID-19 is maximized in the second quarter, a period when LG Electronics could have achieved favorable results."

Additionally, Researcher Kim said, "In the second half of the year, as COVID-19 enters a stabilization phase, most IT companies are likely to experience performance momentum, but LG Electronics is judged to have relatively lower potential. If COVID-19 ends early and pent-up demand arises, a turnaround factor can be expected."

Accordingly, Hana Financial Investment maintained its investment opinion on LG Electronics as 'Buy' and lowered the target stock price to 83,000 KRW. Researcher Kim explained, "This is due to a 17% downward revision of the annual operating profit forecast for this year compared to the previous estimate."

LG Electronics announced last week that its sales for the first quarter of this year were 14.7278 trillion KRW, and operating profit was 1.0904 trillion KRW. Sales decreased by 1% compared to the same period last year, but operating profit increased by 22%. Regarding the cause of the earnings surprise, Researcher Kim said, "It was due to home appliances, TVs, and LG Innotek, and the BS division also contributed to the strong performance by achieving an operating profit margin of 12%. The H&A division improved profitability through strong sales of system air conditioners and steam appliances and cost reductions despite a decrease in sales compared to the same period last year."

Furthermore, he added, "The HE division became the main contributor to the strong performance by expanding the premium share such as OLED and large-size products and reducing marketing expenses despite a decrease in sales and unfavorable exchange rates compared to the same period last year. The MC division experienced a 22% decrease in sales compared to the same period last year due to supply disruptions from Chinese ODMs caused by COVID-19 and store closures in Latin America, resulting in a loss rate similar to the previous quarter, which reflected one-time costs."

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