[Click eStock] LG Electronics to Expand Competitiveness in Automotive Components Business Next Year... Target Price Down 8.7%

Daishin Securities Report

[Asia Economy Reporter Minji Lee] Daishin Securities maintained a buy rating on LG Electronics on the 16th and set the target price at 210,000 KRW, down 8.7% from the previous level. This is due to a slight downward revision of this year's expected performance despite anticipated growth in the automotive components division (VS) next year.

Operating profit for the third quarter is expected to be 1.09 trillion KRW, a 1.5% increase compared to the same period last year, but slightly below market expectations (1.14 trillion KRW). Sales are projected to rise 17.7% to 18.13 trillion KRW during the same period. The home appliances segment is expected to have recorded favorable profitability compared to competitors facing cost burdens from rising LCD panel prices, thanks to strong sales of premium products, and the TV segment saw increased OLED TV sales. However, the B2B business solutions (BS) segment is expected to have experienced sales slowdown due to the resurgence of COVID-19. The VS (automotive components) division likely suffered poor performance due to semiconductor chip supply disruptions leading to reduced production by automotive OEMs.

Researcher Kangho Park of Daishin Securities analyzed, "Although operating profit seasonally decreases in the second half compared to the first half, the discontinuation of the MC (mobile phone) business and strong performance of premium products (home appliances and TV divisions) likely led to better results compared to the same period last year through increased global market share."

Total sales next year are estimated to grow 3.1% from this year to 73.1 trillion KRW. Operating profit is forecasted to increase 8.7% to 4.97 trillion KRW. The VS division is expected to enter a turnaround phase next year. The VS division's projected sales for next year are 9 trillion KRW, a 19% increase compared to one year ago. Operating profit is expected to turn positive (293.7 billion KRW) reflecting economies of scale and mix effects.

Researcher Park stated, "Competitiveness is expected to expand as a global automotive parts supplier, and there is a high possibility of strategic partnerships between LG Group, LG Magna, and Apple when Apple enters the electric vehicle market," adding, "Global automakers are also expected to collaborate with LG Electronics on key components (motors, headlamps)."

Finally, Researcher Kangho Park said, "Although the target price has been lowered to 210,000 KRW reflecting this year's earnings per share (EPS) adjustment, the growth and competitiveness of the VS division next year will be re-evaluated," and forecasted, "There is sufficient upside potential led by premium home appliances."