[Click eStock] "LG Electronics, Smartphone and TV Material Costs Rise... But Trusting Home Appliances and Components"

Increased Material Costs but Difficult to Raise Prices
Strong Performance of LG Innotek and Growth in Home Appliance Sector Provide Support

[Asia Economy Reporter Minwoo Lee] LG Electronics is expected to face a somewhat 'tight' period this year due to the burden of material costs for smartphones and TVs.

On the 9th, Samsung Securities lowered LG Electronics' operating profit forecast for this year by 10.1%, from 2.915 trillion KRW to 2.652 trillion KRW. While the sales forecast remains unchanged, it is estimated that operating profit will decrease due to rising various costs. Researcher Jongwook Lee of Samsung Securities stated, "The burden of material costs (BOM) is increasing for both smartphones and TVs, but the period in which it is difficult to pass on the costs through prices is expected to continue this year as well."

It is an analysis that the trend seen in the fourth quarter of last year may continue this year. Previously, LG Electronics announced that its operating profit for the fourth quarter was 98.6 billion KRW. This is 58% and 65% below Samsung Securities' forecast and market consensus, respectively. The researcher explained, "It is estimated that losses exceeding 100 billion KRW more than initially expected were reflected," adding, "The loss increased due to a decrease in smartphone sales, and TV operating profit also declined more than expected due to intensified competition and marketing costs."

Nevertheless, Samsung Securities still analyzes that LG Electronics has considerable resilience. The H&A (Home Appliance & Air Solution) division, responsible for home appliances, is expected to continuously expand its premium product lineup, while the smartphone business (MC) division is implementing continuous and aggressive cost reductions. LG Innotek, which has been consistently posting strong results, is also highly rated.

Samsung Securities gave LG Electronics a 'Buy' investment opinion with a target price of 84,000 KRW. The closing price on the 8th was 67,500 KRW.