[Click eStock] "LG Saenggeon, Positive Efforts for Structural Improvement... Let's Watch a Bit More"

Investment Rating: 'Neutral'

Korea Investment & Securities maintained a 'neutral' investment rating on LG Household & Health Care, stating that while efforts to increase the low proportion of North American sales and other changes are positive, the external business environment remains unfavorable.

LG Household & Health Care's expected sales for the first quarter of this year are KRW 1.6994 trillion (a decrease of 1.7% year-on-year), and operating profit is KRW 124.7 billion (a decrease of 17.5% year-on-year). Sales are in line with market expectations, but operating profit is expected to fall short by 9%. Operating profit in the beauty segment is expected to improve significantly by about 264% compared to the previous quarter to KRW 40.1 billion, but weak duty-free business conditions, with duty-free sales down 50%, are expected to weigh on performance.

Myungjoo Kim, a researcher at Korea Investment & Securities, said, "It is positive that signals indicate the Chinese cosmetics industry is bottoming out," but added, "Considering that the high-end brand 'Whoo' accounts for an overwhelmingly large share of sales, the Chinese cosmetics industry needs to fully recover for the company's stock price to show a stable trend."

The low proportion of North American sales compared to LG Household & Health Care's Chinese beauty sales is identified as a challenge. Researcher Kim said, "The company recorded good results during last year's Black Friday event in the U.S., raising brand awareness, and at last month's shareholders' meeting, it emphasized accelerating overseas business centered on the Americas, so the proportion of North American sales is likely to increase in the future." However, he added, "While efforts to rebalance overseas business are positive, the U.S. cosmetics industry environment is less favorable compared to last year, so the results need to be monitored further."