LG Electronics, Earnings Concerns 'Gone'... Stock Price 'Soars'

[Asia Economy Reporter Eunmo Koo] Concerns over LG Electronics' performance due to the novel coronavirus infection (COVID-19) have subsided, and expectations for its home appliance competitiveness have increased, driving up its stock price.

According to the Korea Exchange on the 5th, LG Electronics' stock price closed at 77,900 KRW, up 5.27% (3,900 KRW) from the previous trading day. Notably, it rose to 78,100 KRW at one point during the session, setting a 52-week high, and surged 10.2% over two days. During this period, foreign and institutional investors led the price increase by purchasing LG Electronics shares worth 41.7 billion KRW and 23.9 billion KRW, respectively.

Despite a decline in sales due to COVID-19, LG Electronics posted an operating profit exceeding market expectations, turning concerns into optimism, which is interpreted as the cause of the sharp stock price rebound. LG Electronics recorded sales of 12.8338 trillion KRW, down 17.9% compared to the same period last year, but achieved an operating profit of 495.4 billion KRW, surpassing market forecasts.

The competitiveness of home appliances is credited with driving performance resilience. Sales of hygiene and health appliances improved due to COVID-19, and sales of premium TVs increased as more people stayed home. Noh Geun-chang, a researcher at Hyundai Motor Securities, said, "LG Electronics' second-quarter home appliance performance was better than that of competitors in Europe and North America," adding, "Above all, continuous research and development (R&D) led to the release of innovative products, and its global supply chain management capabilities were superior to competitors."

LG Electronics is expected to maintain positive trends in both performance and stock price in the second half of the year, based on the competitiveness of new appliances such as hygiene appliances. Researcher Noh evaluated, "The Styler and dryers, which were highly effective in removing fine dust, are expected to benefit from the halo effect of eliminating various bacteria and contaminants that cause diseases. Dishwashers and robot vacuum cleaners may also reduce various face-to-face demands such as housekeepers, potentially positioning LG Electronics as a leading company in the robot appliance market in the mid to long term." As awareness of virus prevention increases due to COVID-19, KB Securities estimates that the domestic new appliance market will grow by 38% this year compared to last year.

The increasing proportion of online sales is also cited as a factor for future profitability improvement. The online sales ratio of LG Electronics' home appliances and TVs rose from 7% last year to 15% in the first half of this year, and is expected to expand to 30% in the second half. Kim Dong-won, a researcher at KB Securities, explained, "As the online sales ratio expands, it is possible to reduce exhibition and promotional costs incurred through existing offline distribution channels, which can act as a factor for profitability improvement in the future."