[Click eStock] "LG Electronics, Significant Impact from Inflation and Demand Decline"... Target Price Down

[Asia Economy Reporter Lee Jung-yoon] Kiwoom Securities maintained its buy rating on LG Electronics on the 22nd but lowered the target price from 160,000 KRW to 150,000 KRW. As an IT set company, the negative impact of inflation, rising raw material prices and logistics costs, and decreased set demand due to reduced purchasing power were reflected. Additionally, the benefits from exchange rates are also limited.

LG Electronics' consolidated operating profit for the second quarter of this year is expected to be 814.8 billion KRW, down 7% from the same period last year, while standalone operating profit is forecasted to decrease by 26% to 548.6 billion KRW.

In particular, the TV division is sluggish as the home entertainment boom caused by the COVID-19 pandemic has disappeared, and the market is showing signs of stagnation due to a sharp decline in European demand caused by the Ukraine war. Kiwoom Securities analyst Kim Ji-san explained, "OLED TVs are at a disadvantage in price competition with the LCD camp, whose panel prices have plummeted," adding, "TV profitability is negatively affected by the strong US dollar and weak other currencies."

The home appliance division has seen increased costs such as raw materials and logistics, but sales are growing across all regions, led by premium products. It is known that the industry as a whole is pursuing price increases and product mix improvements to offset rising costs.

However, the automotive parts division is expected to return to profitability in the second quarter as high-margin infotainment (entertainment + information) projects expand. Furthermore, the easing of supply issues for automotive semiconductors and original equipment manufacturer (OEM) disruptions is also optimistic.

Analyst Kim said, "Although there is a lack of performance momentum in the inflation phase, the profitability turnaround in automotive parts, the highlighting of patent value, and the mid- to long-term revaluation story due to withdrawal from marginal businesses such as solar power will remain valid," adding, "TV performance is expected to hit the bottom in the second quarter, and once distribution inventory adjustments are completed, profitability can be secured based on weak panel prices."

Additionally, the robotics division is analyzed to generate sales results starting in 2023. LG Electronics aims to focus on nurturing specialized service robots for B2B (business-to-business) customers, centered on delivery, guidance, and sterilization. It is also commercializing industrial robots through its subsidiary Robostar.