[Click eStock] "LG Saenghwal Geongang, Time Needed for Earnings Improvement... Target Price Down"
Target Price Lowered by 11% Compared to Previous Level
Daishin Securities lowered the target price for LG Household & Health Care from 360,000 KRW to 320,000 KRW on the 5th, anticipating that it will take time for meaningful earnings improvement. The investment rating was maintained at 'Marketperform.'
Jung Hansol, a researcher at Daishin Securities, explained, "Significant improvement in China seems necessary for the stock price to rise, but due to the contraction of the duty-free channel and continued investment in The History of Whoo rebranding, it is expected to take time for meaningful earnings improvement. Accordingly, earnings estimates were revised downward, and the target price was lowered."
LG Household & Health Care's Q4 results last year recorded sales of 1.6099 trillion KRW, a 3% increase compared to the same period last year, and operating profit of 43.4 billion KRW, a 21% decrease, falling short of market expectations. Researcher Jung said, "The cosmetics segment posted sales of 699.4 billion KRW, up 5%, and operating profit of 11 billion KRW, up 50%. Although traditional channel sales were sluggish, sales and operating profit improved year-on-year due to recovery in China from a low base." He added, "Duty-free sales are estimated to have decreased by 11% to 76.9 billion KRW due to weakened B2B demand and an unfavorable business environment. Chinese sales are estimated to have increased by 26% to 237.8 billion KRW due to The History of Whoo rebranding and the Singles' Day effect, but operating losses likely continued due to increased marketing expenses."
Additionally, the household goods segment recorded sales of 499.5 billion KRW, down 1%, and operating profit of 22.2 billion KRW, up 22%. Despite a slight decline in sales due to domestic economic downturn, operating profit increased thanks to efficiency improvements in the North American business and an improved product mix centered on premium brands. The beverage segment posted sales of 411 billion KRW, up 3%, and operating profit of 10.2 billion KRW, down 65%. Despite growth in major brands, one-time costs of about 20 billion KRW related to workforce restructuring significantly reduced profitability.
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Efforts to diversify overseas business have continued since last year, but opinions suggest that it is still limited as a stock price momentum factor. Researcher Jung said, "Since last year, efforts to diversify overseas business centered on North America have continued to reduce high dependence on the Chinese market, with in-house brand sales centered on belif, TFS, and CNP showing growth in non-China regions." He added, "While the potential for mid- to long-term growth drivers can be confirmed, the still low sales proportion limits its role as a stock price momentum."
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