[Market Focus] 'Earnings Shock' Hits LG Household & Health Care with 6% Drop... Target Prices Cut by Analysts

On the morning of August 1, LG Household & Health Care shares showed a decline of over 6%. This drop followed the company’s second-quarter earnings, which fell significantly short of market expectations due to losses in the cosmetics division, as well as a wave of negative reports from securities firms, including downward revisions of target prices.

As of 9:45 a.m. on the same day, LG Household & Health Care shares were trading at 296,000 won per share, down 6.33% from the previous session.

The previous day, LG Household & Health Care announced that its consolidated operating profit for the second quarter of this year was provisionally tallied at 54.8 billion won, a sharp decrease of 65.4% compared to the previous year. Revenue also dropped by 8.8% to 1.6049 trillion won. In particular, the cosmetics division recorded an operating loss.

In response, securities firms released a series of negative reports, including downward revisions of target prices. Mirae Asset Securities downgraded its investment rating on LG Household & Health Care to neutral and lowered its target price from 400,000 won to 290,000 won. Analyst Bae Songyi commented, "The cosmetics division recorded a loss for the first time. This was due to a rapid deterioration in both duty-free and China businesses, contrary to expectations." She added, "The company announced a strong restructuring plan for the cosmetics division, starting with a reduction in duty-free volume this quarter. As this will involve additional costs, earnings volatility is inevitable for the time being."

Kiwoom Securities also lowered its target price to 290,000 won. Analyst Cho Soyoung of Kiwoom Securities stated, "It will be difficult for profitability in overseas markets to improve even in the second half of the year," and added, "As efficiency improvements in traditional domestic distribution channels are still underway, it will be hard to recover profits to previous levels in the short term." Ha Heeji of Hyundai Motor Securities also lowered the target price to 280,000 won, saying, "Weak profitability is unavoidable in the second half." Jung Jiyoon of NH Investment & Securities stated, "Confirmation of a fundamental recovery in the cosmetics division is necessary," and set a target price of 270,000 won (downward revision) with a hold rating (maintained).