[Click eStock] LG Household & Health Care, Strategy to Buy on Price Correction

[Asia Economy Reporter Junho Hwang] Hana Financial Investment maintained its investment opinion on LG Household & Health Care as "Buy" on the 28th and set the target price at 2 million KRW. The company viewed the Q4 earnings last year as falling short of market expectations, limiting strong stock price momentum for the time being. However, due to the strong performance in the cosmetics industry, increased brand awareness in China, and a comfortable valuation (12MF PER of 26x), it judged that the stock price correction would be limited.

In particular, Hana Financial Investment noted that although LG Household & Health Care did not provide guidance this year due to external uncertainties, if profits in Q1 this year increase by more than 10% compared to the previous year, stock price momentum recovery could be expected. Accordingly, it was observed that a strategy of buying during stock price corrections would be effective for the time being.

The recently announced Q4 earnings of LG Household & Health Care last year fell short of market expectations. The Q4 consolidated sales and operating profit grew by 4% and 6% respectively compared to the same period last year, reaching 2.0944 trillion KRW and 256.3 billion KRW.

The recovery in cosmetics sales stood out. Duty-free sales increased by 7% year-on-year to 480 billion KRW. Cosmetics sales in China reached 395 billion KRW, up 41% from the previous year. The sales of The History of Whoo increased by 19% from last year to 839.7 billion KRW. Accordingly, cosmetics operating profit rose by 5% year-on-year to 225.4 billion KRW.

The household goods business grew by 24% compared to last year due to additional sales from New Avon and Physiogel, but operating profit increased by only 4% year-on-year due to a reduction in high-margin hygiene product sales and increased marketing expenses. Beverage sales and operating profit grew by 4% and 6% respectively, with most of the sales growth attributed to price effects (P).

The reason for the Q4 earnings being weaker than expected was the decline in profitability in the household goods segment. Despite the low base from the previous year and the addition of high-margin Physiogel sales, the increase in operating profit was limited. Consolidated sales and operating profit for this year are estimated to grow by 16% year-on-year to 9.113 trillion KRW and 1.412 trillion KRW, respectively.