[Click eStock] "LG Saenghwal Geongang, Stock Price Correction as a Buying Opportunity"

KB Securities Report

[Asia Economy Reporter Minji Lee] KB Securities maintained its buy rating and target price of 2.1 million KRW for LG Household & Health Care on the 8th. It is analyzed that investor sentiment has shifted to stocks in the consumer goods sector that had poor stock price performance, leaving LG Household & Health Care relatively overlooked.

Shinae Park, a researcher at KB Securities, said, "Although the stock price has recently undergone a correction, it is expected to demonstrate superior performance this year based on differentiated brand competitiveness and excellent cost management capabilities."

Consolidated sales and operating profit are expected to grow by 11% and 15%, respectively, this year. Sales in the household goods segment are expected to decline by 6%, while the beverage segment is expected to grow by 2%, limiting profit growth. This is because demand for hygiene products was unusually high last year, there was the effect of the New Avon acquisition, and selling and administrative expenses were also streamlined. Sales and operating profit in the cosmetics segment are expected to grow by 18% and 23%, respectively, driving overall profit growth. Duty-free sales and sales in China are expected to increase by 28% and 25%, respectively.

Consolidated sales for the first quarter of this year are expected to reach 2.0947 trillion KRW, an 11% increase compared to the same period last year. Operating profit is also expected to increase by 11% to 370.7 billion KRW. Sales and operating profit in the cosmetics segment are predicted to grow by 16% and 18%, respectively. Duty-free sales are expected to grow by 27% compared to a year ago, and sales from the Chinese subsidiary are expected to achieve high growth of 47% due to a low base effect. Brand "Whoo" is projected to increase sales by 50%, and "Su:m37" by about 40%.

Sales of household goods are expected to grow by 3%, but operating profit is likely to decline by 6% due to a high base effect. Excluding the effect of the Physiogel acquisition, sales growth is estimated to be around 1%. Sales of hygiene products are expected to decline significantly compared to the same period last year, which was the early stage of COVID-19, leading to an estimated 1.2 percentage point drop in operating profit margin.

Researcher Park said, "Sales and operating profit in the beverage segment are expected to grow by 4% and 1%, respectively," adding, "Despite strengthened social distancing measures, demand for delivery food is expected to drive growth in carbonated beverage sales."