[Concall] LG Electronics "Expecting High Growth in Auto Parts Sales"... Trusting Future Engines (Comprehensive)

Only 'Jeonjang' in Home Appliances and TV Posts Operating Profit Surplus
4Q Jeonjang Business Sales and Operating Profit Expected to Increase
"This Year's Investment to Proceed Similar to Early Year Plan"

[Asia Economy Reporter Kim Pyeonghwa] LG Electronics recorded its highest quarterly sales ever in the third quarter, but due to the worsening macroeconomic conditions, operating profit has effectively decreased, and the company is looking to the automotive components (VS) business as a key to overcoming business challenges. LG Electronics expects the VS division's sales to increase in the fourth quarter of this year, with operating profit also expected to return to the black. The company explains that the growth potential remains high going forward.

Only the Growth Engine 'Automotive Components' Business Turned a Profit

Shim Sangbo, LG Electronics' IR officer, said during a conference call held after the third-quarter earnings announcement on the 28th, "We aim to actively respond to the recovering demand for automotive parts to secure momentum demand." Despite uncertainties in the business environment caused by the prolonged Russia-Ukraine conflict and intensified global inflation, which have dampened consumer demand, the company expressed its intention to overcome difficulties through next-generation growth engines.

In the third quarter of this year, due to the economic downturn, LG Electronics saw operating profits decline in all business areas except VS: H&A (home appliances), HE (TV), and BS (business solutions). The VS business, which LG Electronics is nurturing as a growth engine, posted an operating profit of 96.1 billion KRW, marking a second consecutive quarter of profitability. Sales also surged 45.6% year-on-year to a quarterly record of 2.3454 trillion KRW. This was the result of actively responding to increasing demand and efforts such as improving the cost structure.

LG Electronics expects the growth trend in the VS division to continue through the fourth quarter of this year and into next year. Kim Jooyong, head of VS management at LG Electronics, said, "We expect the VS division's sales to grow rapidly in the fourth quarter and operating profit to achieve profitability. We anticipate high growth in 2023 as demand for automotive parts increases and new projects proceed."

Regarding VS business sales, LG Electronics revealed that the infotainment segment accounts for over 60% of sales in North America. The company also noted that transactions with domestic and Japanese companies are increasing. Electric vehicle parts are also generating sales mainly in North America, and the establishment of LG Magna e-Powertrain (EPG) is expected to increase the proportion and scale of European transactions in the future.

The VS division's order backlog (orders not yet fulfilled) is expected to exceed 80 trillion KRW by the end of the year. Previously, it was estimated to be around 65 trillion KRW, but new orders in the third and fourth quarters and recent exchange rate increases have changed the forecast.

Kim explained, "Looking at the product composition of the total order backlog, infotainment accounts for about 60%, electric vehicle parts are in the mid-20% range, and automotive lamps make up the remainder. Due to the high growth of the electric vehicle market and the effect of the LG Magna EPG joint venture (JV), we expect the proportion of electric vehicle parts in the order backlog to expand further in the future."

Home Appliances and TV Inventory at Appropriate Levels... "This Year's Investment Similar to Early-Year Plan"

LG Electronics also forecasted additional profitability improvements next year through cost reductions in the H&A business. The company plans to continue its sales strategy focusing on premium home appliances, which have low demand volatility, and actively pursue price increases.

As of the end of September, LG Electronics considers the inventory levels of home appliances and TVs to be appropriate. In the European TV market, the company expects a 5% growth in volume in the fourth quarter, coinciding with the peak season. Additional demand generated by the upcoming 2022 Qatar World Cup is also seen as a positive factor.

LG Electronics plans to maintain this year's capital expenditure (CAPEX) at a level similar to the plan set at the beginning of the year until the end of the year. While strengthening investments to discover new businesses, the company will minimize investments that are not essential or urgent, aiming to improve investment efficiency to cope with the economic downturn and demand slowdown.

LG Electronics' consolidated sales for the third quarter increased by 14.1% year-on-year to 21.1768 trillion KRW, setting a record high for a quarter. Operating profit rose 25.1% year-on-year to 746.6 billion KRW. However, the operating profit includes a provision of about 480 billion KRW related to General Motors (GM) electric vehicle recalls recorded in the third quarter of last year. Excluding this, the actual operating profit declined compared to the same period last year.

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