[Click eStock] "LG Electronics Faces Unfavorable Environment Until First Half of Next Year... VS Division Sees Profitability Improvement"

LG Electronics Performance Trends and Outlook
[Image Source=Korea Investment & Securities]

[Asia Economy Reporter Lee Jung-yoon] Korea Investment & Securities maintained a buy rating and a target price of 120,000 KRW for LG Electronics on the 11th. The stock price-to-book ratio (PBR) based on this year is low at 0.7 times, and the profitability improvement in the VS division, which is the automotive components sector, has secured downside rigidity for the stock price. However, it was evaluated that there is a lack of upward momentum for the stock price due to the demand slowdown in the main business divisions.

LG Electronics' provisional consolidated sales for the third quarter of this year recorded 21.2 trillion KRW, up 14% from the same period last year, and operating profit increased by 25.1% to 746.6 billion KRW. Excluding the consolidated subsidiary LG Innotek, sales amounted to 16.5 trillion KRW, and operating profit was 333.8 billion KRW. Operating profit is estimated to have decreased by 35.2% compared to the previous quarter.

Sales in the Home Appliances & Air Solution (H&A) division increased by 6.5% year-on-year but decreased by 6.8% quarter-on-quarter. The operating profit margin fell from 5.4% in the previous quarter to 2.4%. The division responded to the weakening demand by strengthening promotions.

The Home Entertainment (HE) division, responsible for the TV business, continued to experience sluggish market conditions as expected. Sales decreased by 9.4% compared to the previous year, and the operating profit margin is estimated to be at the break-even point (BEP). Since major components such as panels are purchased in US dollars, the strong dollar appears to have negatively impacted profitability.

Sales in the VS division are estimated to have increased by 49.2% year-on-year, and the operating profit margin also rose by 1.9 percentage points quarter-on-quarter to 4.4%.

Researcher Cho Cheol-hee of Korea Investment & Securities explained, "Due to the decline in global consumer IT set demand, the unfavorable operating environment is expected to continue from the fourth quarter of this year through the first half of next year," adding, "H&A will continue to see a slowdown in sales of traditional durable goods such as washing machines for the time being, but new growth appliances will minimize negative impacts." He further stated, "However, the operating profit margin expectations should be somewhat lowered," and "The HE division's global TV shipment rebound is forecasted to occur after the second quarter of 2023."

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