LG Electronics Benefits from 'Jipkok'... Approaching 100,000 Won

Expected to Exceed Performance Forecasts for Home Appliances and Home Entertainment... Smartphone Losses Decrease

[Asia Economy Reporter Koo Eun-mo] Since the outbreak of the novel coronavirus disease (COVID-19), the 'Homeconomy (Home+Economy)' trend, where consumption activities take place at home, has continued, raising expectations for LG Electronics' performance. The stock price is also approaching the 100,000 KRW mark.

According to the Korea Exchange on the 7th, LG Electronics' stock price closed at 94,400 KRW, up 2.50% (2,300 KRW) from the previous trading day. In particular, it rose to 98,500 KRW at one point during the session, setting a new high and showing signs of challenging the 100,000 KRW level. The last time LG Electronics' stock price closed above 100,000 KRW was on May 3, 2018 (103,000 KRW), two years and five months ago. Foreign investors have been leading the recent stock price rise, purchasing LG Electronics shares worth 55.7 billion KRW over two trading days this month and net buying 101.1 billion KRW since September.

The recent strength in LG Electronics' stock price is interpreted as a result of expanding optimism due to the visibility of a turnaround to profitability in businesses identified as mid- to long-term growth drivers, in addition to expectations for short-term earnings. First, the core businesses, Home Appliance & Air Solution (H&A) and Home Entertainment (HE) divisions, are expected to show better profitability than previously forecasted. The demand for health-related home appliances has increased due to heightened hygiene awareness amid COVID-19, and sales of TVs and other products have expanded mainly through online and non-face-to-face channels as people spend more time at home.

The recovery of the Mobile Communications (MC) division is also a positive factor. The previously struggling smartphone division is estimated to have increased sales and reduced deficit rates, supported by demand recovery in the U.S. market. Kim Rok-ho, a researcher at Hana Financial Investment, evaluated, "The continuous growth in scale and reduction in losses of the smartphone division for three consecutive quarters is positive as it reduces volatility in LG Electronics' earnings estimates."

With the strong performance of major divisions and the escape from downturns, the third-quarter earnings this year are also expected to meet market expectations. According to financial information provider FnGuide, LG Electronics' operating profit for the third quarter is estimated at 842.1 billion KRW, a 7.8% increase compared to the same period last year. Sales for the same period are also projected to rise 3.4% to 16.2284 trillion KRW.

The visible turnaround from losses in the Vehicle Components (VS) division, considered a future growth engine, is also seen as supporting the stock price. The vehicle components division, regarded as a mid- to long-term growth driver for LG Electronics, has not contributed to earnings so far and has not positively influenced the stock price. However, with the expansion of sales of profitable electric vehicle parts, it is expected to achieve annual profitability starting next year.

Kim Dong-won, a researcher at KB Securities, forecasted, "Considering that LG Chem's valuation doubled due to the electric vehicle battery profitability turnaround in the second quarter of this year, the future profitability turnaround of the vehicle components business will act as a revaluation factor for LG Electronics' stock price."

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