LG Household & Health Care Minimizes COVID-19 Impact... Solid Mid-to-Long-Term Growth Direction

[Asia Economy Reporter Oh Ju-yeon] SK Securities analyzed that LG Household & Health Care was able to minimize the impact of the novel coronavirus disease (COVID-19) thanks to the boom in daily necessities and cost management, and although there is short-term uncertainty, the medium- to long-term growth direction is solid.

LG Household & Health Care recorded sales of 1.9 trillion KRW and operating profit of 334 billion KRW in the first quarter of this year, increasing by 1.2% and 3.6% respectively compared to the previous year, exceeding performance consensus. SK Securities explained that this earnings surprise of LG Household & Health Care was the result of a combination of factors including strong sales of beverages and daily necessities, increased profitability due to product mix improvement, better-than-expected demand for cosmetics, and efficient cost management.

Researcher Jeon Young-hyun said, "Due to the spread of COVID-19 making international travel impossible, duty-free sales in the second quarter are expected to shrink compared to the first quarter," but added, "Considering the high luxury sales ratio (71%, Hoo+Soohyang+O Hui) within the cosmetics sector, it is expected that the most stable demand absorption in the industry will be possible centered on the luxury portfolio during the recovery phase of Chinese cosmetics consumption."

Furthermore, sales in the daily necessities sector are expected to grow by more than 18% year-on-year until the second quarter, driven by sales of hygiene products related to COVID-19 and expansion of premium product lines, partially offsetting the sluggishness in the duty-free cosmetics sector.

Researcher Jeon evaluated, "LG Household & Health Care overcame crises through channel restructuring and diversification, as well as brand reorganization during the Middle East Respiratory Syndrome (MERS) in 2015 and the Terminal High Altitude Area Defense (THAAD) crisis in 2016," adding, "As a result, it has become the fastest responder to demand across all Chinese online and offline channels among domestic cosmetics companies, and is advantageous in terms of profitability."

He continued, "In a situation with high market volatility like now, companies like LG Household & Health Care, which have low risk of market share decline and possess mega brands with high brand loyalty, are favorable for investment," and forecasted, "Although short-term stock price volatility may be high due to concerns over COVID-19 resurgence and entry restrictions, the steady demand for luxury cosmetics from Chinese consumers is continuously confirmed. Considering the stable demand recovery mainly for the luxury brand 'Hoo' in the second half of the year, the medium- to long-term stock price growth potential remains significant."

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