[Click eStock] "LG Saenghwal Geongang, Q3 Earnings Expected to Fall Short Due to Weak Chinese Consumption... Target Price Down"

Target Price Adjusted Down from 530,000 Won to 500,000 Won

Hana Securities on the 27th downgraded the target price of LG Household & Health Care from 530,000 KRW to 500,000 KRW, citing weaker-than-expected third-quarter earnings this year due to sluggish consumption in China. The investment rating was maintained at 'Buy.'

Park Eun-jung, a researcher at Hana Securities, explained, "Due to weak consumption in China, a decline in local and duty-free sales is expected, leading us to revise downward the operating profit forecast for cosmetics compared to previous estimates. Overall, retail sales of cosmetics in China are on a weak trend, and despite a low base effect, the weakness intensified from June. Third-quarter retail sales of cosmetics in China are on a contraction trend of over 6% year-on-year."

Hana Securities forecasts LG Household & Health Care's third-quarter performance to record sales of 1.7 trillion KRW, down 3% year-on-year, and operating profit of 138.5 billion KRW, up 8%, which is below the consensus operating profit estimate of 167.2 billion KRW. Researcher Park said, "We expect third-quarter cosmetics sales to be 650 billion KRW, down 3% year-on-year, and operating profit to increase by 233% to 25.8 billion KRW. Sales in China and duty-free are projected at 130 billion KRW and 150 billion KRW, respectively. Although China is expected to grow 30% year-on-year due to a low base last year (sales below 100 billion KRW, turning to a loss), it is expected to underperform compared to previous estimates (150 billion KRW). The off-season for e-commerce coupled with offline weakness will lead to sluggish sales and increased marketing expenses, resulting in continued losses in China. Duty-free sales have been declining since the beginning of the year, and despite the low base, a contraction is expected. Local consumption weakness has shrunk overall demand," she added. "We estimate a 32% decrease year-on-year and an 18% decrease quarter-on-quarter."

Although expectations for economic stimulus measures by the Chinese government were reflected in a significant stock price rebound on the 25th, the weakness in China is still expected to remain a burden. Researcher Park said, "While the strong stimulus measures have positively affected sector sentiment amid ongoing consumption stagnation, various assumptions are needed for actual corporate profit improvement, so it is difficult to view the situation optimistically. The overall recovery in North American performance is positive, but the continued sales contraction and losses in China following last year remain a concern. Growth drivers outside China are needed at this time."

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