[Click eStock] "LG Saenggeon, Earnings Hit Unavoidably by China's Lockdown... Target Price ↓"

[Asia Economy Reporter Kwon Jae-hee] Hyundai Motor Securities maintained a 'Buy' rating on LG Household & Health Care on the 1st but lowered the target price from 1.3 million KRW to 1.25 million KRW.

This is due to the expected margin contraction in the cosmetics division in Q1 this year, as offline channels were hit by the slowdown in Chinese consumption and strengthened quarantine measures such as lockdowns, along with continued sluggish duty-free sales performance.

Hyundai Motor Securities forecast LG Household & Health Care's Q1 consolidated revenue at 2.0408 trillion KRW and operating profit at 345.4 billion KRW. The high-margin duty-free channel weakness, which persisted in Q4 last year, is expected to continue partially into Q1 this year, leading to a decline in consolidated operating profit.

The cosmetics division is expected to record sales of 1.1229 trillion KRW and operating profit of 223.9 billion KRW in Q1. Cosmetics sales in the duty-free channel are judged to inevitably face market sluggishness.

Hyun Hye-jin, a researcher at Hyundai Motor Securities, analyzed, "The Chinese market was expected to recover distribution traffic from March after the Olympics in January-February, but due to traffic restrictions caused by strengthened quarantine measures in major first-tier cities, offline cosmetics sales locally are expected to slow down," adding, "The heightened local quarantine level may continue into Q2."

The household goods division is estimated to have sales of 546.9 billion KRW and operating profit of 69.3 billion KRW. The price increase effect in Q1 is expected to offset the burden of rising costs.

The beverage division is estimated to have sales of 370.9 billion KRW and operating profit of 52.2 billion KRW.

Researcher Hyun Hye-jin said, "Performance impact is inevitable due to uncertainties in the Chinese market," and analyzed, "If local demand in China is confirmed in Q2, further declines are expected to be limited and are likely to gradually ease."