15% Drop in a Week... LG Saenggeon Hits Yearly Low Despite Strong Performance

2Q Earnings Held Up Well but Stock Price Declines for 7 Consecutive Trading Days
China and Duty-Free Sales Fall Short of Expectations... Concerns Rise Over Lack of Future Growth Drivers

LG Gwanghwamun Building, the headquarters of LG Household & Health Care

[Asia Economy Reporter Minwoo Lee] LG Household & Health Care's stock price is struggling despite strong earnings. Concerns about slowing growth have emerged as sales growth in China fell short of expectations.

According to the Korea Exchange on the 29th, LG Household & Health Care's stock price fell for seven consecutive trading days from the 19th to the 27th. During the previous day's session, it again hit the yearly low of 1,468,000 KRW recorded on March 4. Compared to the opening price of 1,717,000 KRW on the 19th, the stock plunged about 15% in roughly a week. The decline accelerated especially after the Q2 earnings were announced on the 22nd. The stock closed down 3.73% that day, followed by drops of 6.15% on the 23rd and 3.08% on the 24th.

The problem is that this downward trend occurred despite strong earnings. LG Household & Health Care posted consolidated sales of 2.0214 trillion KRW and operating profit of 335.7 billion KRW in Q2 this year. This represents a 13.4% increase in sales and a 10.7% increase in operating profit compared to the same period last year. It recorded the highest-ever sales, operating profit, and net profit for the first half of the year. Operating profit for the first half was 706.3 billion KRW, up 10.9% from the same period last year.

Nevertheless, the stock's weakness is attributed to sales from key sources?duty-free shops and the Chinese subsidiary?falling short of expectations. Shin-ae Park, a researcher at KB Securities, explained, "Although sales from the Chinese subsidiary increased 11% year-over-year, they fell 10% quarter-over-quarter, underperforming the market growth rate of 5% compared to the previous quarter. Duty-free shop sales also declined 2% quarter-over-quarter, falling short of the estimated market growth rate of 10-15%."

Until the growth trend in sales from the Chinese subsidiary and duty-free shops is reconfirmed, the stock price is expected to remain on the sidelines. Seong-i Baesong, a researcher at KTB Investment & Securities, said, "As the Chinese market quickly returns to normal, competition has intensified, and sales did not increase relative to marketing costs during China’s largest e-commerce event in the first half, ‘6·18’, leading to a slowdown in overall sales and operating profit growth. The competitive environment may continue, and concerns about the COVID-19 pandemic remain."

Brokerages have also lowered their target prices one after another. Hana Financial Investment cut its target price by 12.5% from 2 million KRW to 1.75 million KRW immediately after the earnings announcement. KB Securities and Hyundai Motor Securities (both 1.95 million KRW), as well as IBK Investment & Securities (1.96 million KRW), also revised their target prices downward from the 2 million KRW range to the 1.9 million KRW range.