[Click eStock] "LG Electronics, Earnings Surprise Expected for 2 Consecutive Quarters... Target Price Up"

Target Price Raised from 160,000 Won to 170,000 Won

On the 8th, KB Securities maintained its 'Buy' rating on LG Electronics and raised the target price from 160,000 KRW to 170,000 KRW, expecting the company to achieve an earnings surprise for the third quarter following the second quarter of this year.

Dongwon Kim, a researcher at KB Securities, stated, "The upward revision of the target price reflects the second-quarter earnings surprise and the improved performance of affiliates LG Innotek and LG Display, leading us to raise the consolidated net profit forecasts for 2024 and 2025 to 2.7 trillion KRW and 3.6 trillion KRW, respectively." He added, "In particular, LG Electronics' revenue structure is rapidly shifting towards B2B (business-to-business) sectors such as platform services and high-value-added air conditioning systems, which is expected to reduce the volatility of earnings with a high start and low finish pattern. The improved performance of affiliates LG Innotek and LG Display will contribute to LG Electronics' consolidated net profit growth, with future increases in operating profit translating into net profit growth."

LG Electronics is expected to achieve operating profits exceeding 1 trillion KRW in the third quarter following the second quarter, raising expectations for two consecutive quarters of earnings surprises. The cumulative operating profit for LG Electronics from the first to the third quarter is estimated at 3.66 trillion KRW, which is expected to surpass last year's full-year operating profit of 3.54 trillion KRW within nine months. Researcher Kim said, "LG Electronics recorded an operating profit of 1.2 trillion KRW in the second quarter, exceeding the consensus (average securities firm forecast) by 20%, delivering an earnings surprise." He continued, "Especially, the third-quarter operating profit is expected to exceed 1.1 trillion KRW, surpassing 1 trillion KRW for the quarter and achieving the highest quarterly performance on record." He added, "This is due to the annual growth rate of 30-40% in sales of high-margin air conditioning systems and platform services."

From this year, the increase in LG Electronics' operating profit is expected to directly lead to net profit growth. Researcher Kim explained, "Over the past three years, LG Electronics has recognized an average annual equity method valuation loss of 850 billion KRW on its 37.9% stake in LG Display, but this is expected to shrink to 67.1 billion KRW next year and turn into an equity method valuation gain starting in 2026." He added, "Accordingly, while the average annual net profit of LG Electronics over the past three years (980.4 billion KRW) was only 26% of its operating profit (3.72 trillion KRW), the consolidated net profit for LG Electronics this year and next year is expected to expand to 2.7 trillion KRW and 3.6 trillion KRW, respectively, reaching 60% and 66% of operating profit, significantly highlighting its undervaluation appeal."

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