[Click eStock] "LG Electronics, Focus on Earnings Improvement in Q1 Next Year"

[Asia Economy Reporter Lee Jung-yoon] Daishin Securities maintained a buy rating and a target price of 120,000 KRW for LG Electronics on the 15th, stating that it is time to focus on earnings improvement in the first quarter of next year.

LG Electronics' consolidated operating profit for the fourth quarter of this year was 325.9 billion KRW, down 51.9% year-on-year, falling short of consensus estimates. Sales increased by 9.1% to 22.93 trillion KRW, which appears to be in line with estimates.

The poor performance in the fourth quarter is attributed to losses in the HE division, which handles the TV business. Amid weak global TV demand, active inventory reduction efforts are expected to increase costs. The decline in LCD (Liquid Crystal Display) TV prices and stagnation in OLED (Organic Light Emitting Diode) TV sales are also burdensome. Sales weakening centered on the IT business is also estimated due to the off-season entry of the Home Appliance (H&A) segment.

However, operating profit in the first quarter of next year is estimated to increase by 246% compared to the fourth quarter, reaching 1.1286 trillion KRW. Kang-ho Park, a researcher at Daishin Securities, explained, "We expect seasonal peak season entry and further profit improvement in H&A. Although H&A profitability declined due to increased logistics costs this year, logistics cost burden is expected to decrease by at least 30-35% year-on-year in 2023." Reflecting the launch of new premium models and an increase in average selling price (ASP), operating profit in the H&A division is expected to increase by 43.4% year-on-year.

The HE division is also analyzed to be able to turn profitable in the first quarter of next year due to active inventory adjustment efforts in the fourth quarter. Although TV demand improvement is limited, it is understood to be due to cost reduction effects.

High growth in sales and operating profit of the VS (Vehicle Solutions) division is expected to continue next year. VS sales are estimated to increase by 32.8% in 2022 and 28.4% in 2023. Researcher Park said, "With the electrification of automobiles and the expansion of electric vehicle proportions, sales expansion of the drivetrain centered on LG Magna, and profitability improvement of infotainment (IVI) and ZKW (headlamps) are expected." Operating profit is expected to be 194 billion KRW in 2022 and 272.9 billion KRW in 2023.

LG Electronics' standalone operating profit for the entire next year is expected to increase by 16.2% year-on-year. Raw material and logistics costs this year are expected to decrease next year, and with increased OLED TV sales, expansion of premium home appliances proportion, and operating profit growth in VS, the company is expected to recover from this year's profitability slump.

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