[Click eStock] "LG Saenghwal Geongang, All Business Divisions Slump... Target Price Down"

Shinhan Investment Corp. maintained its 'Buy' rating on LG Household & Health Care on the 6th but lowered the target price from 790,000 KRW to 610,000 KRW.

In the second quarter of this year, LG Household & Health Care's consolidated sales amounted to 1.7796 trillion KRW, and operating profit was 183.6 billion KRW, down 5% and 15% respectively compared to the previous year. This is expected to fall short of previous estimates. Sales of household goods and beverages are expected to have grown by 2% and 8% year-on-year, respectively, maintaining the previous quarter's trend. However, cosmetics sales are projected to have decreased by 15% during the same period. This is attributed to sluggish duty-free sales and the absence of growth in Chinese local market performance. Duty-free sales are expected to have declined by 36% to 212.8 billion KRW during the same period. Although there was a demand gap due to a boycott by corporate-type daigou in the duty-free sector at the beginning of the year, inventory accumulation demand likely occurred following China's reopening after March. However, this is insufficient to reverse the duty-free trend.

Hyunjin Park, a researcher at Shinhan Investment Corp., analyzed, "The profit margins across all business divisions are expected to have remained low, similar to the previous quarter's trend. Recently, abnormal weather conditions caused raw material prices to surge, maintaining cost burdens, and profitability deteriorated due to the decline in raw material business sales."

Researcher Park added, "The burden of common costs in household goods increased to compensate for cosmetics, and the effects of product and channel mix improvements are unlikely to be better than last year."

Shinhan Investment Corp. pointed out that amid the slow improvement in LG Household & Health Care's cosmetics performance, a change in the 'Whoo' brand, which accounts for the largest sales proportion, is urgently needed. The e-commerce sales proportion in China has risen to the high 40% range, indicating channel mix improvement, but the 'Whoo' brand's e-commerce ranking lags compared to three years ago. Expansion into new Chinese platforms such as Douyin and Kuaishou is positive, but considering the recent lack of growth of Korean brand companies in China, it is essential in the long term to expand connections to ASEAN or North American markets outside China.

Researcher Park concluded, "With the downward revision of estimates, the target price is also lowered. Korean cosmetics brands are struggling in China and are trying to increase their presence outside China. LG Household & Health Care also appears to be securing the financial soundness of its overseas subsidiaries, such as in North America, and preparing for changes in the 'Whoo' brand, so attention is required from a long-term perspective."

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