[Click eStock] "LG Electronics, Earnings Surprise Expected... Breaking Away from High Start Low Finish"

On the 22nd, KB Securities maintained a buy rating and a target price of 160,000 KRW for LG Electronics, anticipating an earnings surprise.

In the first quarter of this year, LG Electronics' home appliances (H&A), business solutions (BS), and vehicle components (VS) divisions are estimated to have operated at over 100% capacity, forecasting an earnings surprise for the first time in a year. The better-than-expected performance is expected to continue into the second quarter and the second half of the year, with an estimated quarterly average operating profit exceeding 1 trillion KRW, signaling a departure from the seasonal performance pattern of strong first half and weak second half.

In particular, the home appliances business is driven by B2B (business-to-business) sales such as system air conditioners and built-in appliances, which account for 25% of total home appliance sales, leading to increased operating rates in the home appliances division. The business solutions segment is also expected to see B2B sales expand to 40% due to increased orders for digital signage and hotel TVs.

The vehicle components business, which is 100% B2B sales, is estimated to have exceeded expectations due to increased orders for electric vehicle parts from LG Magna and shipments of digital telematics (IVI).

LG Electronics' first-quarter revenue is projected to increase by 3% year-on-year to 21.7 trillion KRW, while operating profit is expected to decrease by 33% to 1.3 trillion KRW. The operating profit is anticipated to surpass consensus estimates by 27%, marking an earnings surprise. Notably, second-quarter operating profit is expected to rise 15% year-on-year to 908.5 billion KRW, achieving the highest performance in 14 years since the second quarter of 2009, suggesting that the first-quarter earnings surprise will continue into the second quarter.

Furthermore, starting this year, LG Electronics is expected to break away from the past seasonal pattern of strong first half and weak second half by expanding B2B sales, which are less sensitive to economic fluctuations, achieving an average quarterly operating profit exceeding 1 trillion KRW. Dongwon Kim, a researcher at KB Securities, explained, "LG Electronics' B2B sales ratio is estimated to have doubled from 16% in 2020 to 32% in 2023 over three years. In particular, LG Electronics is promoting new businesses such as smart factories centered on the robot business, which doubles sales every year, so B2B sales are expected to expand further."

He added, "This is because LG Electronics possesses 300 billion parameters and has overcome the limitations of ChatGPT through specialized literature training, utilizing LG's super-large AI, EXAONE, which is expected to create synergy in expanding market share in robots, smart factories, and B2B home appliances in the future."