With Record-Breaking Performance Expected... LG Electronics Gears Up Again

[Asia Economy Reporter Eunmo Koo] Despite the strong KOSPI market in November, LG Electronics' stock price, which had been sluggish, is gaining momentum again this month amid expectations that the company can achieve record-high earnings next year as the profit improvement in its smartphone and automotive components divisions accelerates.

According to the Korea Exchange on the 9th, LG Electronics' stock price closed at 95,000 KRW, up 6.50% (5,800 KRW) from the previous trading day. After rising close to 100,000 KRW in early October, LG Electronics' stock price showed a sideways trend. Even last month, when the KOSPI rose strongly by 14.3%, LG Electronics' stock price increased by only 1.78%, essentially remaining flat. However, this month, it has risen by 11.1% up to the previous day, more than twice the KOSPI's return of 4.2%.

The recent rebound in LG Electronics' stock price is interpreted as being due to growing expectations for record-high earnings next year, driven by faster profit improvements in the automotive components (VC) and smartphone (MC) business divisions. The VS and MC divisions have been continuously posting losses, acting as a discount factor on LG Electronics' stock price. If these two divisions turn profitable or reduce losses starting next year, not only will record-high earnings be achieved, but the undervaluation of LG Electronics' valuation (stock price relative to earnings) could also be resolved. According to financial information provider FnGuide, LG Electronics' operating profit next year is estimated to increase by 13.9% to 3.595 trillion KRW compared to this year.

First, the VS business is expected to drive sales and profit growth through expanded orders and a turnaround to profitability. Particularly positive is the reduction in the scale of losses. In the first half of this year, VS division sales shrank to 1.32 trillion KRW in Q1 and 910 billion KRW in Q2 due to factory shutdowns at client companies caused by COVID-19. Meanwhile, losses expanded to 96.8 billion KRW and 202.5 billion KRW, respectively, during the same period. However, in Q3, as client factories resumed operations, sales reached 1.48 trillion KRW and operating losses narrowed to 66.2 billion KRW, indicating a normalization process in performance.

Researcher Kyungtaek Noh of Eugene Investment & Securities forecasted, “The automotive components division will become LG Electronics' third-largest business group as parts supply increases with the full-scale launch of clients' electric vehicle projects, and profit improvement will accelerate with a quarterly turnaround to profitability.”

The MC division is also expected to significantly reduce losses starting next year through business restructuring and production efficiency improvements. The MC division has posted losses continuously from Q3 2015 through Q3 this year. The total losses over five years amount to 4.5 trillion KRW, with an average annual loss of about 900 billion KRW. Recently, LG Electronics strengthened its Original Design Manufacturing (ODM) organization and carried out organizational restructuring focused on integrating advanced research and marketing teams.

Researcher Dongwon Kim of KB Securities stated, “From next year, losses in the MC business will rapidly shrink due to the expansion of ODM share and selective marketing focused on mid-to-low-end 5G phones. If we assume no losses in the MC business, LG Electronics' corporate value would increase by 4 to 6 trillion KRW, pushing its market capitalization to 20 to 22 trillion KRW.”

Additionally, traditional strong businesses such as home appliances and TVs are expected to contribute stable profits through premiumization. Researcher Noh evaluated, “Changes in lifestyle trends due to COVID-19 and polarization in consumption are creating new growth in premium home appliances and TVs, playing an important cash cow role in driving LG Electronics toward record-high earnings.”

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