[Click eStock] "LG Saenghwal Geongang, Good Performance Beyond Duty-Free... Stability Expected to Continue"

[Asia Economy Reporter Lee Myunghwan] IBK Investment & Securities stated on the 28th that considering the excessive stock price adjustment relative to the fundamentals of LG Household & Health Care, it maintains a buy rating and a target price of 1.5 million KRW.

LG Household & Health Care recorded sales of 2.0231 trillion KRW and an operating profit of 241 billion KRW in the fourth quarter of last year. These figures represent decreases of 3.4% and 5.9%, respectively, compared to the same period last year. Compared to initial market expectations, sales were 1.3% lower, while operating profit was 0.8% higher.

IBK Securities analyzed that the global economic recession and the spread of the Omicron variant virus negatively impacted duty-free shops and department store sales. Sales and operating profit in LG Household & Health Care’s cosmetics division decreased by 13.9% and 16.8%, respectively, compared to the same period last year. Researcher An Jiyoung of IBK Securities commented, "The commission rates for Chinese daigou intermediaries at duty-free shops have increased, which is believed to have expanded discount pressure on domestic brands."

IBK Securities diagnosed that the beverage and household goods divisions showed growth despite rising raw material costs. Researcher An explained, "Although profitability pressures increased, the beverage division drove growth with low-sugar and low-calorie lineups centered on Coca-Cola, and the household goods division led growth through overall brand price increases and premium products from strategic brands such as Dr. Groot."

Strong performance in overseas markets, including China, is also noteworthy. LG Household & Health Care’s overseas sales in the fourth quarter increased by 7% year-on-year to 850 billion KRW. Researcher An analyzed, "In the fourth quarter, China’s online growth rate exceeded 30%, and the online sales ratio reached 55%, expanding growth compared to the third quarter and alleviating concerns."

He added, "Despite continuous cost burdens in the beverage division, price increases and demand growth drove growth in convenience stores and online channels. In the cosmetics division, despite fierce marketing competition and slowed market growth in China, stable rankings within the top 5 luxury brands and absolute positioning were reaffirmed."