[Click eStock] "LG Electronics, Target Price Down 18% but VS Division Expected to Return to Profit"

KB Securities Report

[Asia Economy Reporter Minji Lee] KB Securities maintained a buy rating on LG Electronics on the 30th but lowered the target price by 18% to 130,000 KRW. This reflects concerns that global TV demand this year will drop to its lowest level in 12 years. However, attention is warranted on the expected first operating profit turnaround of the Vehicle Components Division (VS).

LG Electronics' second-quarter earnings are expected to fall short of market expectations due to a decline in profitability in the HE (TV) business. The operating profit margin of the HE division is forecasted to be around 0.2%, significantly lower compared to 8.2% in 2021 and 4.6% in Q1 2022.

On a consolidated basis (including LG Innotek’s operating profit of 271 billion KRW), second-quarter sales are expected to grow 17% year-on-year to 20 trillion KRW. Operating profit is estimated to decrease by 11% to 784.9 billion KRW. Operating profits by division for Q2 are projected as follows: H&A 409.4 billion KRW, Business Solutions (BS) 54.5 billion KRW, VS 40.6 billion KRW, and HE 9.4 billion KRW.

The VS division, which started operations in 2013, is expected to record its first operating profit turnaround in nine years, excluding the 5 billion KRW operating profit in Q4 2015, marking a significant turnaround. Dongwon Kim, a researcher at KB Securities, explained, “Digital infotainment based on plastic OLED, which has good profitability and excellent power efficiency, is expanding orders after supplying to Mercedes-Benz electric vehicles (EQS).” He added, “As the shortage of automotive semiconductors eases, the operating rates of automobile OEMs are recovering rapidly.” The vehicle components order backlog is expected to exceed 67 trillion KRW this year, an increase of more than 10% compared to the previous year.

Researcher Dongwon Kim also stated, “Recently, LG Magna e-Powertrain is preparing to start operations at a new plant in Mexico, and it is estimated that, along with LG vehicle components affiliates (LG Innotek, LG Display), they will be able to supply key components for the Apple Car in the future.”