[Click eStock] "LG Electronics, Limited Momentum Expected in Second Half... VS Division Begins Profit Contribution"

[Asia Economy Reporter Lee Jung-yoon] Hana Securities maintained its buy rating and target price of 170,000 KRW on LG Electronics on the 1st, stating that the VS division, which handles the automotive components sector, has turned profitable and started contributing to earnings.

LG Electronics recorded sales of 19.4641 trillion KRW in the second quarter of this year, a 15% increase compared to the previous year, while operating profit decreased by 12% to 792.2 billion KRW. It was confirmed that the HE division, responsible for the TV business, returned to a loss, while the VS division turned profitable. The H&A division, which handles home appliances, solidified its position in premium appliances with an 18% increase in sales compared to the same period last year, despite a slump in appliance demand. However, operating profit margin remained at 5.4% due to increased overall costs such as logistics and transportation expenses, as well as rising raw material prices.

The HE division showed losses as it proactively responded to the sharp decline in TV demand and the resulting inventory increase. The VS division exceeded 2 trillion KRW in sales for the first time due to easing semiconductor supply and recorded an operating profit margin of 2.5%.

Excluding LG Innotek, LG Electronics’ operating profit for the second half of this year is expected to increase by 18% year-on-year to 691.3 billion KRW. This is due to the base effect from the provision for GM-related battery issues reflected in the third quarter of last year, which caused the VS division’s operating loss to reach 538 billion KRW. Although comparing only the performance of home appliances and TVs shows a decline in profit, there are opportunities despite uncertain demand in the second half. Raw material prices are expected to stabilize downward, and transportation cost burdens are estimated to partially decrease. Additionally, TV sales, which were the cause of the second quarter’s performance deterioration, are likely to rebound in the fourth quarter due to the Qatar World Cup and Black Friday, raising hopes for a turnaround.

Researcher Kim Rok-ho of Hana Securities explained, "LG Electronics’ annual performance trend is typically weaker in the first half and stronger in the second half, so momentum from earnings in the second half cannot be expected, and due to demand uncertainty amid recession concerns, it is difficult to anticipate a turning point in home appliances and TVs." However, he added, "It is important to remember that the VS division, which has secured visibility for external growth, has turned profitable and started contributing to the company’s overall earnings."

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