Foreign Investors and Institutions Drive... Vibrant LG Electronics

[Asia Economy Reporter Koh Hyung-kwang] LG Electronics' stock price is gaining upward momentum thanks to simultaneous buying by foreign and institutional investors. As home appliance consumption increases, the second-quarter earnings exceeded market expectations, and the possibility of a turnaround to profitability in the new growth engine, the automotive components business, has risen, leading to continued buying by major players in the stock market.

According to the Korea Exchange on the 27th, LG Electronics closed the previous day’s session on the KOSPI market at 87,900 KRW, down 2.6% from the previous trading day. Although it slipped slightly on that day, it had risen to 92,400 KRW on the 25th, setting a 52-week high and continuing its recent upward trend. It has risen 24.3% just this month, and compared to the yearly low of 41,600 KRW recorded on March 23, it has more than doubled. LG Electronics’ stock price surpassing 90,000 KRW is the first time in over two years and two months since June 15, 2018 (closing price 90,900 KRW).

The recent rise in LG Electronics’ stock price is attributed to combined buying by foreign and institutional investors. From early May until the previous day, foreigners and institutions have net purchased LG Electronics shares worth 414.4 billion KRW and 281.5 billion KRW, respectively. During this period, the stock price rose from 54,900 KRW to 87,900 KRW, an increase of over 60%. In particular, foreigners have continued to buy LG Electronics shares worth 172 billion KRW this month, making it the top net purchase stock in August. KB Financial (152.3 billion KRW) and Celltrion (144.2 billion KRW) followed.

Regarding the simultaneous buying by major market players, securities firms analyzed that LG Electronics’ valuation attractiveness has increased due to its relatively low price-to-earnings ratio (PER) compared to peers. Although there were concerns that the new coronavirus disease (COVID-19) would negatively impact home appliance earnings, LG Electronics exceeded market expectations with operating profits, turning concerns into optimism, which is a key factor behind the stock price rise.

LG Electronics’ second-quarter sales were 12.8338 trillion KRW, down 17.9% from the same period last year, but operating profit recorded 495.4 billion KRW, surpassing market expectations (early 400 billion KRW range). Ko Jung-woo, a researcher at NH Investment & Securities, said, "There was a strong perception that home appliance companies’ earnings would be significantly weak due to COVID-19, but in LG Electronics’ case, the impact appears to have been limited after the earnings were released, which seems to have had a positive effect."

Expectations for second-half earnings are also high. The COVID-19 pandemic has created growth momentum for new lifestyle home appliances, and the possibility of a turnaround to profitability in the automotive components business related to electric vehicles has increased. Automotive components refer to electrical devices and system-related parts used in cars, and with the automotive market shifting to electric and autonomous vehicles, the usage of automotive electronic products is expected to increase significantly. Kim Dong-won, a researcher at KB Securities, forecasted, "From the second quarter of next year, the possibility of LG Electronics’ automotive components business turning profitable is expected to increase, and in that case, the automotive components division could achieve operating profits of 200 to 300 billion KRW."

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