[Click eStock] Thanks to the Electric Vehicle Components Business... LG Electronics 3Q Smooth Sailing Expected

Operating Profit Expected at 773.8 Billion KRW... 56% Increase QoQ
"Positive Growth in Electric Vehicle Parts and New Home Appliance Demand"

[Asia Economy Reporter Minwoo Lee] LG Electronics is expected to deliver results that exceed market expectations in the third quarter. This is because the demand for hygiene appliances due to the COVID-19 pandemic and the expansion of the electric vehicle market are expected to bring significant achievements in the automotive components business.

On the 20th, KB Securities estimated that LG Electronics would achieve sales of 15 trillion KRW and an operating profit of 773.8 billion KRW in the third quarter. Although this is lower than last year's third quarter results (sales of 15.7 trillion KRW, operating profit of 781 billion KRW), it surpasses the market consensus operating profit forecast of 669 billion KRW by more than 100 billion KRW. Compared to the second quarter, it is expected to increase by about 56%.

It is said that the automotive components (VS) business and the home appliances business worked in tandem. The order backlog for the automotive components business, which was about 53 trillion KRW at the end of last year, is expected to reach 60 trillion KRW by the end of this year. It is also noted that the product mix, consisting of 50% ZKW lamps and 50% automotive components, was effective. Accordingly, a return to profitability is expected from the second quarter of next year, with operating profits projected to reach between 200 billion and 300 billion KRW by the end of next year. This contrasts with the operating loss of 194.9 billion KRW recorded last year and the expected operating loss of 423.9 billion KRW this year.

Dongwon Kim, a researcher at KB Securities, explained, "This is because the revenue recognition of low-priced automotive component orders will end after the fourth quarter of this year, and from next year, the customer base centered on North American and European electric vehicle companies and product mix improvements are expected to occur simultaneously." He added, "Considering that LG Chem's price-to-book ratio (P/B) rose to 3 times due to the turnaround to profitability in electric vehicle battery performance in the second quarter, the increased possibility of profitability in automotive components next year will directly contribute to the valuation increase of LG Electronics."

The home appliances sector is also progressing smoothly. This is analyzed to be due to increased demand for new hygiene appliances with good profit margins as awareness of virus prevention has risen due to COVID-19. The proportion of new appliance sales, which was only 8% last year, is expected to reach 30% in the second half of this year. The increased demand for large TVs due to extended time spent at home is also a positive factor.

Against this backdrop, KB Securities maintained a target stock price of 100,000 KRW and a 'Buy' investment rating for LG Electronics. The closing price the previous day was 85,000 KRW.

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