[Click eStock] "LG Saenggeon, Target Price Raised to 410,000 Won"

Shinhan Investment Corp. raised the target price of LG Household & Health Care to 410,000 KRW on the 22nd, maintaining a trading buy (neutral) investment rating.

Shinhan Investment Corp. analyzed that LG Household & Health Care's short-term performance recovery centered on duty-free sales has become visible. They expect the Q1 consolidated sales to reach 1.6582 trillion KRW and operating profit to be 130.4 billion KRW, exceeding both previous operating profit estimates and the current consensus. They particularly noted that operating profit is expected to recover by 139% compared to the previous quarter.

The increased visibility of performance recovery is attributed to cosmetics duty-free sales. Due to a decrease in bulk purchases related to Chinese daigou, duty-free sales in Q4 last year were only 86.3 billion KRW, but it is expected that Q1 duty-free sales recovered to 172.7 billion KRW, reaching the same level as the same period last year. The sharp decline in bulk purchases since last year is understood to have caused a base effect at the beginning of this year. The fact that inventory depletion by bulk buyers leads to repurchases is seen as possibly due to the renewal effect of the 'Whoo' brand. If the renewal results are accurate, the sustainability of duty-free performance recovery will increase, and a recovery in Chinese performance may also be possible.

In the long term, they forecast a fundamental change in the cosmetics business division. Sales by business division are expected to be similar to last year for household goods, -4% for cosmetics, and +1% for beverages, with operating profit margins projected at 6% for household goods, 7% for cosmetics, and 12% for beverages, indicating a trend of reducing the decline in sales and profits compared to before.

There have been no changes in distribution channels or market trends compared to last year in household goods and beverages. However, in cosmetics, premium segment sales are recovering mainly through H&B channels (such as Olive Young). Sales growth of brands that can ride the indie beauty trend, such as CNP and Hince, appears to maintain double-digit growth. Mid-to-low priced brands are working on channel diversification and related sales recovery through entry into platforms like Coupang. In China, operational losses continue due to ongoing offline channel efficiency improvements, but the renewal success of the 'Whoo' brand is expected to reduce the deficit in the second half of the year.

Researchers Hyunjin Park and Jieun Joo of Shinhan Investment Corp. said, "By revising upward the duty-free sales outlook, operating profit estimates for 2024?2045 have been raised by more than 20%. However, since the stock price has already priced in much of the short-term momentum, we maintain the existing investment rating (trading buy)."

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