LG Electronics Hit Hard by COVID-19 in Q2... "Stock Undervalued"

Operating Profit in Q1 Reaches 1.09 Trillion Won, Up 22% Year-on-Year

LG Electronics installs giant LED signage on Teheran-ro (Photo by Asia Economy DB)

[Asia Economy Reporter Kum Bo-ryeong] Although LG Electronics' second-quarter performance is expected to worsen due to the impact of the novel coronavirus infection (COVID-19), an analysis suggests that it could instead be a buying opportunity at a low price.

According to Hana Financial Investment on the 4th, LG Electronics' sales in the first quarter of this year amounted to 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%. By segment, low exposure to China positively affected sales of home appliances and TVs. TV sales of premium products such as organic light-emitting diode (OLED) and NanoCell showed favorable results, improving the product mix, and demand for air purifiers and other products increased due to COVID-19. In the case of TVs, as Chinese companies faced difficulties in factory operations due to COVID-19, shipments decreased, and LG Electronics benefited relatively.

The problem lies in the second quarter, which is inevitably hit directly by COVID-19. Hi Investment & Securities forecast LG Electronics' second-quarter performance at 12.1 trillion KRW in sales and 230.6 billion KRW in operating profit. These figures represent decreases of 22.3% and 76.6%, respectively, compared to the same period last year. Ko Eui-young, a researcher at Hi Investment & Securities, explained, "40% of LG Electronics' sales come from North America and Europe, where COVID-19 is severe, and large home appliances such as TVs, refrigerators, and washing machines mainly sell through offline channels, so normal business activities are difficult as long as movement restrictions exist," adding, "Especially, the decline in TV sales will be significant."

The stock price, which plummeted due to COVID-19, has recently rebounded to some extent but still falls far short of its previous level. The stock price, which rose to 83,400 KRW on June 12 last year, dropped to 41,600 KRW on March 23 this year. Since then, it recorded a closing price of 54,900 KRW on the 29th of last month. Mirae Asset Daewoo still maintains a target stock price of 82,000 KRW, considering that despite concerns about second-quarter performance, the valuation is sufficiently undervalued.

Kim Un-ho, a researcher at IBK Investment & Securities, said, "The recent stock price is still judged to be undervalued compared to corporate value," adding, "Annual operating profit is expected to exceed 1.5 trillion KRW, and demand for related products will continue steadily after COVID-19 stabilizes." Lee Jae-yoon, a researcher at Yuanta Securities, also analyzed, "The possibility of a stock price decline is expected to be limited," and "Now is a buying period."

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