Earnings Decline at 'LG Electronics', Securities Firms Say "Actually Better"

LG Electronics rises over 4.5% in a week
Brokerage firms say "Time to raise expectations for earnings and stock price rebound"

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Despite LG Electronics posting lackluster results in the fourth quarter of last year, the securities industry has evaluated that it is time to raise expectations for a rebound in performance. This judgment is based on anticipated cost reductions due to declines in logistics and raw material prices, as well as improvements in the VS (Vehicle Components) division's performance.

Looking at LG Electronics' stock price on the 8th, it has risen 4.5% this year, reaching 90,700 KRW. Although the company announced results below market expectations for the fourth quarter, market insiders are analyzed to be betting on the possibility of future performance improvement.

In the fourth quarter, LG Electronics recorded sales of 21.8 trillion KRW and an operating profit of 65.5 billion KRW. Sales increased by 3.2% compared to the previous quarter, but operating profit decreased by 91.2%. Excluding the consolidated subsidiary LG Innotek, sales were 15.6 trillion KRW, with an operating loss of 129.6 billion KRW.

By business division, the H&A (Home Appliance) division's sales decreased by 15.6% compared to the previous quarter. Although marketing expenses increased due to reduced upstream demand, sales focused on high-margin premium products maintained a profitable trend. Due to expanded marketing, distribution inventory decreased below the healthy inventory level (6 weeks).

The HE (TV) division recorded an operating loss for the third consecutive quarter. Sales decreased by 7.6% year-on-year due to sluggish sales in the European region, but increased by 24% compared to the previous quarter through events such as the World Cup and Black Friday. Distribution inventory levels were reduced from the previous 8 weeks to 6-7 weeks due to marketing efforts to clear inventory.

The BS (Business Solutions) division's sales decreased by 13.4% year-on-year. The Information Display (ID) division maintained growth but showed a slowdown compared to the first half of the year, while the IT division underperformed due to weakened set demand. The VS division's sales grew by 43.6% year-on-year and increased by 1.5% compared to the previous quarter. This reflects the impact of increased initial operating costs from operating the Mexico production subsidiary and product development costs for large-scale new orders secured this year.

LG Electronics' expected performance for this year forecasts sales of 87.4 trillion KRW and operating profit of 3.9 trillion KRW, representing increases of 5% and 9% respectively compared to the previous year. A positive aspect is the anticipated improvement in cost structure due to declines in logistics and raw material prices. Kangho Park, a researcher at Daishin Securities, explained, "With the H&A division entering its peak season in the first quarter and improvements in logistics costs, the overall operating profit margin is expected to increase," adding, "The TV division is also estimated to return to profitability through inventory adjustment efforts."

In particular, the VS division is analyzed to drive sales growth by further expanding its order backlog. Dongwon Kim, a researcher at KB Securities, said, "After supplying digital infotainment (IVI) for Mercedes-Benz's electric vehicle EQS, collaboration with the lamp-specialized affiliate ZKW is strengthening, expanding European clients and enhancing earnings visibility."

If performance improvement becomes visible, the stock price is also expected to continue its upward trend. Seungsu Yang, a researcher at Meritz Securities, analyzed, "The company's stock price has shown an upward trend when earnings visibility was secured from the lowest point," adding, "Currently, the stock price has already factored in concerns about potential earnings decline, so attention should be paid to whether performance improves."

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