[Click eStock] "LG Electronics, Stock Price Fully Reflects All Concerns... Potential for Earnings Growth Next Year"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] Meritz Securities on the 12th issued a 'Buy' investment opinion and a target price of 120,000 KRW for LG Electronics.

The periods when LG Electronics' stock price fell below 0.8 times the 12-month forward price-to-book ratio (PBR) corresponded to times when the MC (Mobile Component) division was underperforming and an unfavorable macro environment was expected to lead to earnings decline. Currently, trading at a 12-month forward PBR of 0.66 times, the stock price is considered to have already priced in the possibility of earnings decline. However, operating profit is expected to grow by 7% in 2023, even including one-off gains from 2022. This is due to the increasing contribution of the VS (Vehicle Component Solutions) division and improved profitability from cost reductions through stabilization of logistics and raw material expenses.

Particularly, attention should be paid to the high growth potential of the VS division. The electrification and autonomous driving of vehicles lead to increased use of electronic components, which is expected to serve as a new growth engine for LG Electronics. The VS division is anticipated to benefit from ▲ the spread of electric vehicles ▲ modularization of motors and inverters ▲ enhanced competitiveness of the Mexico plant due to the IRA legislation ▲ gradual performance improvement from easing vehicle semiconductor supply shortages. Concerns about the core H&A (Home Appliance & Air Solution) division's performance are also expected to be alleviated through expansion of premium product share and cost reductions, enabling simultaneous growth in scale and profitability.

Researcher Yang Seungsoo of Meritz Securities stated, "In the past, LG Electronics' stock price tended to rise for about six months to a year once visibility of earnings improvement was secured at the lowest price levels," adding, "Although the current stock price has already priced in all concerns including the possibility of earnings decline, the prospect of earnings growth next year makes a buy approach valid."

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