[Click eStock] LG Electronics H2 Operating Profit 1.3 Trillion Won... Forecasted 'All-Time High'

Decrease in Promotion Expenses Due to Increased Online Sales Amid COVID-19
Hygiene Appliance Sales Also UP... Auto Parts Business on the Rise

[Asia Economy Reporter Minwoo Lee] LG Electronics is expected to achieve a record high operating profit of 1.3 trillion KRW in the second half of this year. This is attributed to increased sales of hygiene appliances due to the COVID-19 pandemic and reduced promotional expenses from the growth in online sales of home appliances and TVs.

On the 22nd, KB Securities maintained a target price of 110,000 KRW for LG Electronics and designated it as the 'top pick' in the electrical and electronics sector. The closing price the previous day was 90,900 KRW. The expectation of record high performance in the second half is due to the automotive components (VS) business streamlining overlapping business structures following the spin-off of LG Chem’s battery division, allowing a focus on securing orders for highly profitable pure electric vehicle parts.

KB Securities forecasts LG Electronics to record sales of 15.6 trillion KRW and an operating profit of 820 billion KRW in the third quarter. In the fourth quarter, operating profit is expected to be 447 billion KRW, resulting in a total operating profit of 1.267 trillion KRW in the second half, marking a record high. This exceeds 2.5 times the average operating profit of 501.7 billion KRW in the second half over the past nine years (2011?2019).

This year, LG Electronics’ automotive components (VS) order backlog is expected to increase by 13% year-on-year to 60 trillion KRW. Considering the recent surge in orders for electric vehicle parts, it is estimated that the order backlog could exceed 60 trillion KRW. KB Securities analyst Goun Hwang stated, "From the fourth quarter, European and North American automakers are preparing to launch new electric vehicle models in large numbers, leading to an increasing trend of 'turnkey' orders placed with LG Electronics, a total solution supplier for electric vehicle parts." He added, "Especially considering that revenue recognition for previously low-priced automotive components orders will end after the fourth quarter, the possibility of the VS division turning profitable from the second quarter of next year is expected to increase."

Existing business divisions are also expected to continue strong performance. The proportion of online sales is projected to triple year-on-year due to increased non-face-to-face purchases of home appliances and TVs. This is expected to effectively reduce promotional expenses. The share of hygiene appliances sales is also anticipated to rise from 8% last year to 30% in the second half of this year, driven by increased awareness of virus prevention due to COVID-19. Analyst Hwang explained, "Especially from the fourth quarter, the launch of new functional home appliances such as the 'PuriCare Mask' with air purification features and the 'Pra.L MediHair' hair loss treatment device in the global markets estimated at 88 trillion KRW and 56 trillion KRW respectively for masks and hair loss treatment is expected to drive profit growth."