LG Electronics Expects Record 3Q Sales Despite Concerns Over Pent-up Demand Slowdown

Effect of Expanding Premium Home Appliances and TV Sales
COVID-19 Pent-up Demand Likely to Slow in Second Half of This Year
From Next Year, Auto Parts Business Expected to Drive Performance Improvement
Auto Parts Business Turns Profitable in 4Q This Year... Sales Expected to Reach 10 Trillion Won Next Year

[Asia Economy Reporter Su-yeon Woo] LG Electronics is expected to achieve its highest-ever quarterly performance in the third quarter of this year despite concerns over the slowdown of the COVID-19 pent-up demand. This is due to the rapid growth of the automotive components division alongside the expansion of market share for premium home appliances and TV products, even as the pent-up effect wanes.

According to FnGuide on the 29th, the consensus for LG Electronics' third-quarter performance this year forecasts sales of KRW 18.1365 trillion and operating profit of KRW 1.136 trillion. These figures represent increases of 7.2% and 18.4%, respectively, compared to the same period last year. The sales figure surpasses the record set in the first quarter of this year (KRW 17.8124 trillion, excluding the MC business), while operating profit is similar to the previous quarter (KRW 1.1127 trillion).

This is attributed to the home appliances (H&A) and TV (HE) business divisions increasing their market share overseas by focusing on high value-added premium products. In particular, the TV division benefited simultaneously from the expansion of OLED TV shipments and cost reductions due to the decline in LCD panel prices. The automotive components (VS) division is facing difficulties due to production disruptions at automakers caused by semiconductor supply shortages, and the business solutions (BS) division, which mainly focuses on IT devices, is expected to contribute minimally to profits as the 'COVID effect' slows down.

Although the home appliances and TV businesses continue to drive steady sales growth by increasing the proportion of high-end premium products, the 'COVID-19 pent-up effect' seen in the second half of last year and the first half of this year is expected to gradually diminish. In particular, there is an interpretation that the demand, which was suppressed in the second half of last year and expanded significantly, has entered a base effect phase in the second half of this year, where the growth rate compared to the previous year inevitably slows down. From a profitability perspective, the operating profit margin, which was close to 10% in the first quarter of this year, fell to the 6% range in the second quarter and is expected to remain in the 6% range in the third quarter as well.

Until the third quarter, the home appliances and TV business will lead performance mainly through new home appliances and OLED TVs, but it is anticipated that the leadership in performance improvement will shift to the automotive components business starting next year. Despite challenges such as production disruptions at automakers due to semiconductor shortages and provisions related to GM electric vehicles, the automotive components business is expected to achieve its first quarterly sales target of KRW 2 trillion in the third quarter of this year.

The financial investment industry expects LG Electronics' automotive components division to turn profitable in the fourth quarter and achieve sales of KRW 10 trillion next year. This is because the launch of the joint venture 'LG Magna Powertrain' with Magna, the world's third-largest automotive parts manufacturer, is expected to maximize synergy effects in the electric vehicle sector. While LG Electronics has supplied single components so far, providing integrated solutions combining infotainment, electric powertrain, and automotive lighting could significantly strengthen market competitiveness.

Kwon Sung-ryul, a researcher at DB Financial Investment, said, "Although the battery module provision issue could be a variable, I believe the automotive components division can turn profitable in the fourth quarter. Through the synergy of the LG Magna joint venture, high growth of 15-20% annually centered on the e-powertrain is expected."

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