[Click eStock] Recovery in Chinese Cosmetics Demand... Bright 3Q for LG Household & Health Care

3Q Operating Profit Expected at 330 Billion KRW, Up 7% YoY
Household Goods Sales Remain Solid...Holiday Season Boost Anticipated

[Asia Economy Reporter Minwoo Lee] LG Household & Health Care is expected to continue solid performance in the third quarter. This is attributed to the recovery in cosmetics duty-free demand as well as the expansion of demand for hygiene products and high-margin beverages.

On the 9th, Yuanta Securities maintained a 'Buy' rating on LG Household & Health Care and raised the target price by 6% to 1.8 million KRW. The closing price the previous day was 1,493,000 KRW. This is based on the expectation that the company will record results exceeding market expectations for the third quarter of this year.

Yuanta Securities forecast LG Household & Health Care to achieve consolidated sales of 1.8729 trillion KRW and operating profit of 333.6 billion KRW in the third quarter. Compared to the same period last year, sales are expected to decrease by 5%, but operating profit is projected to increase by 7%. By segment, cosmetics sales are expected to decline by 16% compared to the third quarter of last year, while sales of daily necessities and beverages are expected to increase by 22% and 2%, respectively.

In particular, cosmetics sales are on a recovery trend. Sales of 972.2 billion KRW and operating profit of 200.2 billion KRW are expected in the third quarter. Although these figures represent decreases of 16% and 6% year-on-year, they are expected to increase by 5% and 12%, respectively, compared to the previous quarter. As China enters a phase of consumption normalization, duty-free demand is showing a clear recovery. Especially, duty-free sales of the brand Whoo are estimated to have increased by 40% from the previous quarter to 340 billion KRW. The growth rate of sales on Tmall exceeds the overall growth rate of cosmetics. Eunjeong Park, a researcher at Yuanta Securities, explained, "Due to the impact of COVID-19, e-commerce concentration and brand polarization have intensified in China. LG Household & Health Care owns luxury brands preferred by Chinese consumers, and e-commerce demand is rapidly increasing."

Sales of daily necessities maintained a solid trend. Sales of 490.8 billion KRW and operating profit of 71.9 billion KRW are expected in the third quarter. Compared to the same period last year, sales are expected to increase by 22% and operating profit by 59%. Researcher Park said, "Heightened awareness of hygiene will focus holiday gifts on hygiene products. As the market leader with the highest market share, the company will absorb market demand and continue the trend of rising profitability."

The beverage segment is also expected to see sales of 410 billion KRW and operating profit of 61.5 billion KRW, increases of 2% and 12%, respectively, compared to the third quarter of last year. Although the volume increase effect due to weather is minimal compared to the first half, the contribution of carbonated drinks is expected to rise due to expanded delivery demand.