[Click eStock] "LG Electronics, Key to Stock Rebound Lies in VS Division"

DB Financial Investment Report

[Asia Economy Reporter Minji Lee] DB Financial Investment maintained its buy rating and target price of 180,000 KRW for LG Electronics on the 23rd. This is based on the expectation that the VS division will return to profitability if the semiconductor supply shortage eases.

DB Financial Investment forecasts LG Electronics' operating profit for Q1 (excluding LG Innotek) to be 1.0379 trillion KRW. Although this represents a 27% decrease compared to the same period last year, the rate of decline has gradually eased since Q3 last year, and positive growth is expected from Q2 onward. Q1 sales are expected to increase by 12% year-on-year, but rising costs in logistics, raw materials, and marketing are pressuring operating profit. In particular, the core H&A (Home Appliance) division is expected to be negatively impacted, with its Q1 operating margin projected at 8.8%, which is about 65% of the historical Q1 average operating margin.

Researcher Seongryul Kwon of DB Financial Investment explained, “However, sales that can predict future demand, excluding the VS (Vehicle Solutions) segment which is experiencing production disruptions, are all expected to achieve double-digit growth, so the situation is not entirely negative.”

The key going forward is the VS division. Assuming that production disruptions caused by semiconductor shortages ease in the second half of the year, the order backlog is already full, so sales are expected to increase significantly. The battery module provision, which was the main cause of last year’s losses, will be minimal this year, raising expectations for the VS division to return to profitability. Researcher Kwon said, “Even if the margins of the H&A and HE (TV) divisions decline somewhat this year, the increase in profits from the VS division will push the company’s annual operating profit to 3.2 trillion KRW, an increase of more than 20%.”

Currently, the company’s stock attractiveness is reflected in a price-to-earnings ratio (PER) of 7.4 times and a price-to-book ratio (PBR) of 1.2 times based on this year’s figures. The historical average PER and PBR are 11.8 times and 1.1 times, respectively. Researcher Kwon stated, “Both earnings and stock price could improve from the current levels,” adding, “If the improvement in the VS division becomes more evident, the stock price will gain upward momentum.”

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