[Click eStock] "LX Hausys, Earnings Slump Amid Housing Demand Slowdown... Target Price Down 37%"

[Asia Economy Reporter Kwon Jae-hee] Yuanta Securities maintained its investment opinion of 'Buy' on LX Hausys on the 20th, but lowered the target price by 37% from the previous 79,000 KRW to 50,000 KRW.

As of the first half of this year, LX Hausys recorded sales of 1.81 trillion KRW and operating profit of 12.6 billion KRW. Sales increased by 8.5% compared to the previous year, but operating profit decreased by 79.1% during the same period. Sales growth centered on building materials continued due to the expansion of B2B items following increased housing sales and the contribution of premium product segments. On the other hand, operating profit improvement was slow due to cost burdens from rising prices of key raw materials such as PVC and continued losses in the automotive materials and film divisions. The increase in selling and administrative expenses caused by rising oil prices, maritime freight, and local transportation costs in overseas markets such as the United States also negatively affected operating profit improvement.

However, the building materials division is expected to continue its sales growth centered on B2B, along with the effects of capacity expansion. The operating rate of the PF insulation production lines (lines 1 to 4) is understood to be around 80-90%. Nevertheless, the decline in PVC prices, a major raw material in the building materials division, is expected to have a limited effect on spread improvement due to increased transportation costs and higher raw material purchase costs caused by the rising won-dollar exchange rate. The automotive materials and film division is expected to show gradual improvement due to increased sales of Hyundai and Kia vehicles. However, the industrial film division, which has a high export ratio, is expected to have limited performance improvement due to weakening demand for home appliances despite favorable exchange rate effects.

Researcher Kim Ki-ryong of Yuanta Securities said, "The B2C market expansion strategy will take time to achieve visible results due to the contraction of housing sales transactions caused by interest rate hikes and weakened housing demand." He added, "However, regarding the medium- to long-term growth of the interior and remodeling market, LX Hausys' expanding influence is considered valid, so we maintain our investment opinion of 'Buy.'"