LG Electronics Faces 'Burden' in TV and Home Appliances in Second Half... Automotive Sector Shows Promise

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] LG Electronics, which announced solid second-quarter earnings, is facing concerns that recovery in the TV and home appliance sectors may be difficult in the second half of the year due to the global economic downturn. On the other hand, expectations are growing for the automotive components business, which successfully turned a profit.

On the 9th, the securities industry expressed a rather pessimistic outlook for LG Electronics in the second half of the year after the company released its preliminary second-quarter results. Despite a contraction in consumer sentiment, LG Electronics recorded sales of KRW 19.472 trillion and operating profit of KRW 791.7 billion in the second quarter, achieving the highest sales ever for the second quarter. However, attention is focused on the likelihood that the global economic environment will worsen further in the second half.

Analysts Cho Cheol-hee and Park Sung-hong of Korea Investment & Securities noted that inflation and interest rate hikes are weakening consumers' real purchasing power, and demand is rapidly slowing, especially for durable consumer goods (TVs, home appliances, etc.) that sold well in 2020?2021. They stated, "It is difficult to expect a quick recovery in the TV and home appliance sectors," and "reflecting the sluggish demand environment, we have lowered our estimated sales for the HE division (TV) by 9.0% for this year and 8.2% for next year."

SK Securities analyst Lee Dong-joo also expressed concerns, saying, "The unstable Chinese market, inflation, and interest rate hikes continue to create an unfavorable external environment, making quantitative growth in the set (finished products) sector in the second half uncertain, and high inventory levels are also a burden." He added, "TV and home appliance distribution inventories are higher than usual, and due to intensified competition, it is difficult to reduce marketing expenses. Logistics costs also remain high."

However, expectations are rising that the automotive components division (VS Business Unit), which turned a profit in the second quarter, could achieve better-than-expected results in the second half. LG Electronics previously announced that it secured new projects worth a total of KRW 8 trillion in the automotive components business in the first half of this year. Accordingly, the industry is opening the possibility that the total VS order backlog could surpass KRW 65 trillion by the end of the year at the current pace.

Choi Bo-young, an analyst at Kyobo Securities, said, "The VS business is experiencing sales growth due to the easing of semiconductor production constraints and a larger-than-expected significant profit turnaround," and added, "Based on the surprising second-quarter results, sales growth is expected to continue in the third and fourth quarters."

DB Financial Investment analyst Kwon Sung-ryul also said, "VS, which exceeded expectations in the second quarter, is expected to see an increase in sales scale in the second half as vehicle production rises, establishing a profit trend."

KB Securities analyst Kim Dong-won diagnosed, "The high-profitability plastic OLED-based digital infotainment is expanding its customer base as orders increase following supply to Mercedes-Benz, so the VS business's profit trend is expected to continue in the second half." He added, "▲ The profitability of plastic OLED-based digital infotainment (IVI) is favorable, ▲ the shortage of automotive semiconductors is easing, allowing automobile OEMs to quickly recover operating rates, and ▲ the automotive components order backlog is expected to increase by 10% year-on-year to KRW 67 trillion this year."

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