[Click eStock] "LG Saenghwal Geongang Lowers 2024 Operating Profit Forecast by 10%"

On the 1st, Samsung Securities downgraded LG Household & Health Care's 2024 operating profit forecast by 10% compared to the previous estimate and lowered the target price from 440,000 KRW to 380,000 KRW. The investment rating was maintained at 'Hold.'

LG Household & Health Care recorded Q4 sales of 1.57 trillion KRW, down 13% year-on-year. Operating profit for the same period plunged 58% to 54.7 billion KRW, meeting market consensus (average estimate). The operating profit margin fell by 3.6 percentage points to 3.5%. Due to non-operating losses of 164.9 billion KRW, the company posted a net loss for the period.

Senior analyst Park Eun-kyung said, "Sales decreased by double digits and operating profit sharply declined due to intentional sales adjustments at duty-free shops caused by brand renewal and sluggish sales in China. Additionally, non-recurring expenses of around 10 billion KRW per quarter occurred from Q2 to Q4 last year due to restructuring of domestic and overseas sales channels, workforce, and organizational structure."

She added, "The trend of Chinese consumers avoiding high-end cosmetics continues, and sales of ‘The History of Whoo’ remain at levels lower than during the COVID-19 pandemic. The brand renewal of The History of Whoo included tightly controlling sell-in (sales from the company to distributors) at duty-free shops to promote the clearance of old product inventory, which was also a cause of the sharp sales decline."

LG Household & Health Care provided 2024 guidance, expecting single-digit growth in overall sales compared to the previous year. This assumes duty-free channel sales will remain at last year's level, and HDB and beverage sales will also be flat year-on-year.

Senior analyst Park Eun-kyung explained, "This implies that the growth rate for the rest of the cosmetics business is expected to be over 10%. The assumptions for duty-free sales are more conservative than ours, but the assumptions for the rest of the cosmetics business are more aggressive than ours."

She continued, "We are lowering the 2024 operating profit forecast by 10% compared to the previous estimate. Although the Q4 duty-free performance deterioration was due to the company's intentional and temporary measures, there is insufficient evidence to gauge the speed of normalization, so we judged that a conservative approach is appropriate."