[Edaily Reporter Park Jeong-soo] Korea Investment & Securities maintained its “Neutral” investment rating on #LG Household & Health Care on the 11th, stating that the company’s second-quarter earnings are expected to exceed market expectations. The firm did not provide a target price. The previous day’s closing price was 234,500 won.
Kim Myung-ju, an analyst at Korea Investment & Securities, stated, “We expect second-quarter operating profit to exceed market expectations by 9.3%,” adding, “It is clear that the stock price has bottomed out.”
Korea Investment & Securities estimated that LG Household & Health Care’s second-quarter revenue would be 1.5745 trillion won, a 1.9% decrease year-over-year, while operating profit would rise 47.6% to 80.9 billion won. The operating profit margin (OPM) was projected at 5.1%. Analyst Kim noted, “While the beverage and household goods segments are somewhat disappointing, the beauty segment is performing better than market concerns.”
Operating profit for the home care division is projected to be 21 billion won, a 26.5% year-over-year decrease, while operating profit for the beverage division is expected to be 41.2 billion won, a 3.2% decline over the same period. The significant drop in home care operating profit is attributed to a higher year-over-year base resulting from the transfer of certain brands to the beauty division in the first quarter.
In contrast, the beauty division is expected to return to profitability with an operating profit of 18.7 billion won. Analyst Kim explained, “The results are better than the market’s low expectations because second-quarter duty-free sales are projected to reach 86.4 billion won, a level similar to the first quarter.”
Analyst Kim noted, “While it is difficult to conclude that LG Household & Health Care’s brand strength has fully recovered in China at this point, it is clear that the duty-free industry environment is improving.” He added, “The resumption of ‘daigou’ transactions for certain cosmetic products in the first quarter led to an operating profit surprise, and considering the rising purchasing power of daigou buyers due to the strengthening yuan, it is highly likely that these transactions will continue in the second quarter.”
He noted, “We maintain a neutral investment rating as it is difficult to confirm a recovery in brand strength in China,” but added, “Given the recent strong performance of Dr. Groot and Yushimol in the U.S. and the high likelihood that duty-free channel sales will remain stable, we believe the stock price has bottomed out.”
He further noted, “LG Household & Health Care’s current stock price is at its lowest level since 2010,” and diagnosed that “since the stock has been neglected by the market for a long time, any future market correction is likely to result in only a limited decline.” He added, “Even minor changes, such as brand performance on Amazon or sales trends in the duty-free sector, could trigger a stock price rebound, so it is necessary to closely monitor relevant indicators.”