[Click eStock] "LG Electronics, Surprise Q1 Earnings Expected This Year... Excessive Concerns Reflected in Stock Price"

[Asia Economy Reporter Ji Yeon-jin] KB Securities announced on the 2nd that it maintains a buy rating on LG Electronics, expecting a 'surprise performance' in the first quarter of this year and stating that concerns over the restructuring of the smartphone (MC) business have been excessively reflected in the stock price.

The stock price of LG Electronics fell 16.8% from 176,000 KRW on the 17th of last month to 146,500 KRW on the 26th of the same month due to concerns about the continuation of the MC business. However, the uncertainty surrounding the MC business is expected to be quickly alleviated through restructuring towards a positive business direction. Even assuming that negotiations for the sale of the MC business fail, the possibility of maintaining the MC business, which has recorded losses for six consecutive years, is slim, and it is estimated that many global companies are still exploring the possibility of acquiring the MC business.

It has been pointed out that LG Electronics' market capitalization (25.2 trillion KRW, including preferred shares) does not reflect future business structure changes such as reduced losses after smartphone business restructuring or a turnaround to profitability in the automotive components sector. Although LG Electronics generates an average annual operating profit of 3.7 trillion KRW from three business divisions?Home Appliance & Air Solution (H&A), TV, and PC?concerns about continued large-scale losses from maintaining the MC business and uncertainties regarding the profitability turnaround of the automotive components business are simultaneously reflected. However, if the MC business restructuring and profitability turnaround of the automotive components business materialize in the future, LG Electronics' corporate value is estimated to increase by at least 10 trillion KRW considering the growth potential of electric vehicles.

LG Electronics is expected to achieve its highest-ever performance in the first quarter of this year, surpassing the operating profit of 1.9 trillion KRW recorded in the first quarter of 2020. LG Electronics' first-quarter operating profit (1.14 trillion KRW) is likely to exceed market expectations as LG Innotek's first-quarter results, included in the consolidated earnings, are also expected to be a surprise.

Dongwon Kim, an analyst at KB Securities, forecasted, "From the second half of this year, LG Electronics is expected to see a profitability turnaround in the automotive components business, and the scale of losses due to MC business restructuring is also expected to be significantly reduced, leading to balanced earnings growth across all business divisions."