[Click eStock] "LG Electronics, Full Business Unit Performance Improvement Expected in Second Half"

DB Financial Investment Report, Target Price Up 12%
Q3 Operating Profit to Exceed 600 Billion KRW
"No Large IT Stocks Undervalued Below PER 10x"

[Asia Economy Reporter Minji Lee] DB Financial Investment on the 31st issued a buy rating for LG Electronics and raised the target price by 12% from the previous level to 93,000 KRW. This is based on the judgment that the performance of all business divisions, including the home appliance division and smartphone sector, could improve in the second half of the year.

In the second quarter, LG Electronics' standalone sales, excluding LG Innotek, amounted to 11.4 trillion KRW, down 20% compared to the previous year. Although the decline in sales was larger than expected, operating profit recorded 453.8 billion KRW, exceeding market expectations. This was because, despite the decrease in sales across all divisions due to the COVID-19 pandemic, the Home Appliance (H&A) division significantly increased its sales.

The H&A division increased the proportion of new home appliance sales and showed solid sales growth in the Korean market. Seongryul Kwon, a researcher at DB Financial Investment, analyzed, “Thanks to the strong performance of the H&A division, the operating profit exceeded market expectations by offsetting the larger-than-expected losses in the Vehicle Component (VS) division and the slightly below-expectation performance of the TV (HE) division.” He added, “The smartphone (MC) division saw an increase in sales and a slight reduction in losses due to the launch of the new Velvet model and improved actual sales in advanced markets such as the US and Europe.”

Operating profit is expected to increase further in the third quarter compared to the second quarter. Although profits typically decline in the third quarter compared to the second, deferred demand and projects are expected to be reflected in the third quarter, resulting in operating profit exceeding 600 billion KRW. H&A sales are expected to increase by 10% year-on-year, HE is anticipated to see growth in OLED TV sales and overall TV shipments. VS is expected to reduce losses as deferred projects translate into sales, and MC is projected to halt the sales decline that has continued since the fourth quarter of 2017 due to the expanded sales of Velvet in the North American market, the launch of budget models, and increased sales of 5G smartphones.

Researcher Seongryul Kwon stated, “Despite the challenging business environment caused by COVID-19, LG Electronics demonstrated solid resilience compared to competitors,” and explained, “Considering that there are hardly any large IT stocks domestically or internationally undervalued with a price-to-earnings ratio (PER) below 10, we recommend buying.”