[Click eStock] "LG Electronics, Expecting Improvement Across All Divisions... Still Cheap"

DB Financial Investment Report
Target Price Raised by 4%

[Asia Economy Reporter Minji Lee] DB Financial Investment expressed on the 22nd that LG Electronics is still undervalued compared to its expected performance. Furthermore, it expects earnings growth across all business sectors until 2021, recommending a buy rating with a target price raised by 4.4% from the previous to 120,000 KRW.

LG Electronics' standalone operating profit for the 4th quarter is forecasted to be 360 billion KRW, turning profitable compared to the same period last year and exceeding market expectations. Following the 3rd quarter, it continues to show high annual growth, shedding its reputation for weakness in the 4th quarter through strong year-end demand for home appliances and TVs and tight inventory management.

The Home Appliance (H&A) division is expected to achieve the highest operating profit margin for the 4th quarter, and the Home Entertainment (HE) division is anticipated to maintain a favorable operating profit margin despite increased marketing expenses, driven by increased OLED TV sales. The Vehicle Components (VS) division is expected to significantly reduce its operating loss.

A strong performance recovery is expected in the first quarter of next year. Standalone sales for Q1 are projected at 13.672 trillion KRW, with operating profit at 1.018 trillion KRW. Seongryul Kwon, a researcher at DB Financial Investment, explained, “LG Electronics’ pure operating profit will exceed 3 trillion KRW next year,” adding, “The first quarter is the peak season for home appliances, and the success of new appliances continues to grow.”

In 2021, operating profit in the 3 trillion KRW range is expected even excluding LG Innotek. Assuming no special demand like this year in home appliances and home entertainment, good profitability can be maintained, and the reduction in losses in the vehicle components and mobile phone (MC) divisions is expected to reach 400 billion KRW. Researcher Kwon stated, “The surge in new appliances and the expansion of OLED TV sales are key points to watch,” and added, “The vehicle components division is expected to turn profitable in 2021 as many low-price orders are resolved and sales increase significantly.”