[Click eStock] "LG Saenghwal Geongang, Strong Performance in Household Goods Sector... Target Price Up 4.7%"

Korea Investment & Securities Report
3rd Quarter Operating Profit 312 Billion KRW

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on LG Household & Health Care on the 25th and raised the target price by 4.7% from the previous level to 1,750,000 KRW.

LG Household & Health Care's operating profit for the third quarter is expected to be 312 billion KRW, similar to the same period last year. The decline in operating profit margin in the cosmetics sector is limited to 1.3 percentage points, while the profitability of the household goods sector improves by 3.2 percentage points, resulting in an overall operating profit margin expected to be similar to last year's 15.8%.

With profitability management and recovery of local sales in China, cosmetics operating profit is expected to decrease by 16% to 179 billion KRW. The Chinese cosmetics market is the fastest recovering among major global markets. Premium skincare products have high global brand preference, and LG Household & Health Care's cosmetics sales in China are expected to increase by 30% compared to the same period last year.

Duty-free sales are inevitably sluggish, decreasing by 32% compared to the same period last year, but are expected to increase by about 40% compared to the second quarter. Na Eunchae, a researcher at Korea Investment & Securities, explained, "The Korean duty-free industry is recovering mainly through large Chinese daigou," adding, "With the peak season in China, LG Household & Health Care's cosmetics sales are expected to gradually increase."

Household goods are estimated to have operating profit soaring by 60% year-on-year to 73 billion KRW, continuing the strong performance in the first half. This year, the household goods sector is showing strong performance due to expanded demand for hygiene products and the expansion of the personal care business through strengthening body & hair care and skin improvement cosmetics. Profitability is also improving due to high growth in online channels. The food and beverage sector's operating profit is expected to increase by 10% year-on-year to 60 billion KRW.

Researcher Na Eunchae stated, "High profitability and a stable portfolio mean low earnings volatility," and explained, "The recent stock price decline due to price adjustments should be used as a buying opportunity."