LG Electronics Expected to Perform Well in Q2 Earnings

[Asia Economy Reporter Song Hwajeong] LG Electronics is expected to record solid performance in the second quarter of this year, supported by steady demand for home appliances.

According to the securities industry on the 6th, LG Electronics' operating profit for the second quarter is expected to exceed consensus. Hanwha Investment & Securities forecast LG Electronics' second-quarter operating profit at 421.7 billion KRW, surpassing the consensus of 384.2 billion KRW. Hana Financial Investment estimated LG Electronics' second-quarter operating profit at 505.3 billion KRW, revising up their previous forecast of 406.6 billion KRW. Meritz Securities also predicted 407.7 billion KRW, exceeding consensus.

Despite the COVID-19 situation, strong home appliance sales drove the performance. Kim Rokho, a researcher at Hana Financial Investment, explained, "The domestic market, which accounts for 30% of home appliance sales, has recovered from the impact of COVID-19, and demand centered on steam appliances is strong," adding, "There were concerns about a decline in global TV demand and resulting poor performance in the Home Entertainment (HE) segment, but the decrease in TV demand is estimated to be smaller than expected."

This performance is considered resilient compared to global home appliance companies. Researcher Kim said, "Whirlpool and Electrolux mentioned in their earnings announcements that they expect weak second-quarter results due to COVID-19 but anticipate demand recovery in the second half," and analyzed, "Although LG Electronics' second-quarter performance is inevitably weak, the domestic market accounts for 30% of home appliances, and the demand decline due to COVID-19 in Korea is limited." He added, "Among global home appliance companies in the second quarter, LG Electronics' performance is expected to stand out, and its stock price performance is likely to be relatively favorable."

Whether demand recovers in the second half of the year is a key issue. Juminwoo, a researcher at Meritz Securities, said, "It is important whether air conditioner sales will fully start in the third quarter and whether deferred demand for home appliances will occur," adding, "Also, in the HE segment, demand recovery in regions such as South America and China, excluding the U.S., is important."

Performance forecasts and target stock prices are also being revised upward. Hanwha Investment & Securities raised LG Electronics' annual operating profit estimate for this year from 2.2 trillion KRW to 2.4 trillion KRW, and accordingly raised the target stock price to 74,000 KRW. Hana Financial Investment increased the annual operating profit forecast by 8% compared to the previous estimate. Kim Junhwan, a researcher at Hanwha Investment & Securities, said, "The current stock price is only 0.7 times the price-to-book ratio (PBR) based on 2020, still at a historically low level," adding, "Gradual valuation recovery is expected with demand recovery for sets in the second half."