[Click eStock] LG Electronics Raises Q4 Earnings Outlook... "Stock Undervalued"

Hana Financial Investment Report
VS Division Deficit Reduction Expected

[Asia Economy Reporter Minji Lee] Hana Financial Investment on the 3rd forecasted that LG Electronics' operating profit will expand in the 4th quarter, recommending a buy rating with a target price of 125,000 KRW.

LG Electronics is estimated to record an operating profit of 611 billion KRW in the 4th quarter, a 10% upward revision from the previous estimate. Kim Rokho, a researcher at Hana Financial Investment, said, "The online sales ratio has increased in the Home Appliances (H&A) and TV (HE) divisions, improving profitability compared to before," and added, "Tighter inventory management compared to previous years is expected to reduce year-end obsolete inventory and promotion-related costs." The positive earnings revision of its subsidiary LG Innotek is also expected to further increase LG Electronics' operating profit.

The reduction in losses in the Vehicle Components (VS) division is also positive. Last year, the quarterly average sales were 1.37 trillion KRW with an operating loss of 48.8 billion KRW. In the first half of this year, due to the COVID-19 pandemic, customer factories increased operations, causing VS division sales to shrink from 1.32 trillion KRW in Q1 to 910 billion KRW in Q2. The operating loss also increased from 96.8 billion KRW to 202.5 billion KRW.

In the third quarter of this year, with the resumption of customer factories, sales reached 1.48 trillion KRW and operating loss was 66.2 billion KRW, indicating the start of performance normalization. The 4th quarter is expected to record sales of 1.77 trillion KRW and an operating loss of 33 billion KRW, exceeding last year's quarterly average sales and reducing the loss margin. Researcher Kim Rokho explained, "The expansion of sales and reduction of losses in the VS division positively increase the visibility of turning profitable next year."

LG Electronics' current stock price has a PER of 6.68 times, which is lower than the global home appliance companies' average PER of 18.16 times, suggesting it is in a severely undervalued range. Next year's ROE is 13.61% and PBR is 0.85 times, below 1. Kim said, "In 2018, the PBR expanded to 1.46 times due to expectations of profitability turnaround in the VS division, so the stock valuation is expected to enter an expansion phase going forward," and added, "The VS division, a future growth engine, has secured visibility for profitability turnaround next year based on an order backlog of 60 trillion KRW."