'Year-End Strength' LG Electronics, Quiet This Year Amid Economic Downturn Impact

Stock Prices Drop Over 8% This Month
Next Year's Earnings Forecast Also Revised Downward

[Asia Economy Reporter Minji Lee] LG Electronics' stock price, which used to show strong performance at the end of the year, is this year heading downhill without making any significant gains. Although the stock price rose for three consecutive years from 2019 to 2021, this year is different. It has collapsed in front of the high wall called the 'economic recession.'

On the 29th, LG Electronics' stock price closed at 86,500 KRW, down 3.24% from the previous trading day. It has fallen more than 8% since the 1st of this month. On the 7th, news broke that Apple’s autonomous vehicle, the so-called ‘Apple Car,’ launch plan was delayed by one year to 2026, later than the original target date, causing the stock to drop more than 7% in a single day. This was largely due to high expectations that LG Electronics, LG Innotek, and LG Energy Solution would collaborate on the Apple Car.

It is unusual for LG Electronics to show a downward trend at the end of the year. In the stock market, LG Electronics is considered a stock to buy in December. There is even a saying that if you buy it 10 times, it will rise 7 times without fail. In fact, looking at LG Electronics' stock price trend over the past five years during December, it rose every year except in 2018 (-14%). It increased by 18% in 2017, 3% in 2019, 57% in 2020, and 19% in 2021. The rise in LG Electronics' stock price was largely due to seasonal earnings. As a home appliance company, air conditioner shipments and new product launches are concentrated in the first half of the year, resulting in better performance than in the second half. This expectation was reflected early in the stock price, leading to an upward trend.

This year, expectations for earnings growth next year are low. Due to concerns about an economic recession caused by high-intensity interest rate hikes, sluggish performance is expected in the HE (TV) and H&E (home appliances) divisions. The stock price decline in 2018 was also due to similar reasons. Amid growing concerns about a global IT demand decline, TV sales decreased in emerging markets, and cost concerns arose due to intensified competition in the Chinese market. Even considering the seasonal earnings pattern for Q4 this year, consumer demand appears to have significantly decreased. Operating profit is expected to have recorded 470 billion KRW, down 21% from the same period last year. LG Electronics' standalone operating profit is estimated to have posted a loss.

Brokerages expect it will be difficult for earnings to improve significantly in the first half of next year as well. The expected operating profit for Q1 is 1.0387 trillion KRW, down 45% from the same period last year. For Q2, an increase of 17% to 926.4 billion KRW is expected, but this forecast has been revised downward from the estimate three months ago (1.07 trillion KRW). No Geun-chang, a researcher at Hyundai Motor Securities, analyzed, “Considering that TVs were at the center of revenge consumption during the COVID-19 pandemic and that there was a World Cup special in Q4 this year, replacement demand is expected to remain sluggish next year. Also, considering that home appliances with replacement cycles of over 10 years experienced revenge consumption until last year, the possibility of a significant increase in demand within three years is low.”

The key factor that can move LG Electronics' stock price going forward is the performance of the VS (Vehicle Solutions) division. From next year, the VS division's contribution to operating profit is expected to reach the 12% range. The increasing proportion of high-margin products is also a positive factor. Ko Eui-young, a researcher at Hi Investment & Securities, predicted, “In the long term, the VS division's sales in 2025 will reach 13 trillion KRW, accounting for 20% of LG Electronics' standalone sales. Considering that the annual average order backlog growth rate over the past three years was 15%, it is expected to achieve double-digit external growth.”

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