[Click eStock] "LG Electronics, Time to Focus on Profitability Improvement"

SK Securities Report

[Asia Economy Reporter Minji Lee] SK Securities maintained its buy rating on LG Electronics and kept the target price at 130,000 KRW on the 30th.

On the 7th, LG Twin Tower in Yeouido, Seoul, ahead of LG Electronics' preliminary announcement of its fourth-quarter management performance for last year. According to the securities industry, LG Electronics is expected to record sales in the 20 trillion won range and operating profit in the 800 billion won range in the fourth quarter, driven by strong sales of home appliances and TVs. Photo by Kang Jin-hyung aymsdream@

In the fourth quarter, LG Electronics recorded sales of 21.8575 trillion KRW and an operating profit of 69.5 billion KRW. Sales increased by 5.2% compared to the same period last year, while operating profit decreased by 90.7%. Marketing expenses increased to normalize distribution inventory for TVs, home appliances, and PCs, resulting in weak profitability in the set business division. Additionally, the VS (Vehicle Solutions) business division incurred operational costs related to a new factory.

Demand for sets such as home appliances, TVs, and PCs is expected to remain weak throughout this year. The environment inevitably limits external growth. However, profitability improvement is expected to begin in earnest from the first quarter. Dongju Lee, a researcher at SK Securities, said, “The decline in raw material costs such as copper and resin is expected to be fully reflected in the first quarter, and logistics costs will also be applied from January under renewed contracts.” Accordingly, separate operating profit excluding last year’s one-time patent-related gains is expected to increase from 1.5 trillion KRW to over 2 trillion KRW.

The VS business division is expected to lay the foundation for mid- to long-term growth as new achievements centered on electric vehicles continue. As of the end of last year, the order backlog stood at around 80 trillion KRW.

Researcher Dongju Lee analyzed, “The poor performance in the fourth quarter rather provides confidence that the bottom has been reached,” and added, “Instead of worrying about the well-known set demand, focus should be placed on gradually improving performance.”