[Click eStock] "LG Electronics to Improve Profitability in Automotive Components Division This Year"

Hana Financial Investment Report

[Image source=Yonhap News]

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 225,000 KRW for LG Electronics on the 28th. Although a slowdown in demand for home appliances and TVs is expected, the profitability improvement in the VS (Vehicle Components) division is anticipated.

In the fourth quarter, LG Electronics recorded sales of 21.0086 trillion KRW, a 21% increase compared to the same period last year, while operating profit decreased by 21% to 677.7 billion KRW. On a separate basis excluding LG Innotek, sales and operating profit increased by 13% and decreased by 52%, respectively, during the same period.

Sales achieved solid growth despite concerns about contraction in both the home appliances and TV segments. However, profitability declined due to increased costs such as rising raw material prices and logistics expenses. The VS division saw sales decline by 3% compared to the previous quarter due to production disruptions at automakers.

Sales for this year are expected to reach 79.7845 trillion KRW, and operating profit is projected at 4.7846 trillion KRW, representing increases of 7% and 24% respectively compared to a year ago. The core business units, home appliances and TV divisions, are expected to experience profit declines due to increased cost burdens, but the scale growth is predicted to minimize the extent of profit reduction.

The 'key' to profit growth is the reduction of losses in the VS division. The VS division recorded a loss of 932.8 billion KRW last year, including provisions exceeding 710 billion KRW related to GM's electric vehicle fires. Due to semiconductor shortages causing production disruptions at automakers, sales have declined for four consecutive quarters since reaching 1.915 trillion KRW in Q4 2020. Kim Rok-ho, a researcher at Hana Financial Investment, stated, “This year, semiconductor supply shortages are expected to ease, leading to increased sales each quarter,” and forecasted, “Assuming no one-time costs occur, a loss of 33.8 billion KRW is expected.”

To boost earnings momentum, a market revaluation of the VS division is necessary. Researcher Kim analyzed, “From a stock price perspective, the VS division needs to highlight its competitiveness through turning profitable and securing new customers,” and added, “The current PER (price-to-earnings ratio) based on this year is only 7.1 times, indicating that the value of the VS division is not yet reflected.”