[Edaily Reporter Kwon Oh Seok ] SANGSANGININVESTMENT&SECURITIES announced on the 4th that it is maintaining its “Buy” rating on LG H&H(051900)but lowering its target price from 350,000 won to 310,000 won.

Song Ji-yeon, an analyst at SANGSANGINVESTMENT&SECURITIES, stated, “It is too early to discuss a recovery in the fundamentals of the cosmetics business. A re-rating could be possible if the recovery of The After or the additional success of in-house brands other than Dr. Groot is confirmed in the future.” However, she added, “Since it is difficult to expect visible results from either of these in the short term, we believe the potential for a sustained upward trend in the stock price is limited.”
Previously, third-quarter revenue came in at 1.5774 trillion won (down 0.2% year-over-year), and operating profit at 70.4 billion won (up 52.4%), both falling short of consensus estimates. The cosmetics division posted revenue of 660.8 billion won (-0.3%) and an operating loss of 10.9 billion won. Although duty-free sales grew by triple digits year-over-year, this was offset by a revenue reduction (approximately 20 billion won) resulting from the sale of Avon and negative growth in China (-21.1%).
Analyst Song explained, “In China, sales declined due to a restructuring of the online channel strategy, and losses remained at the same level as the prior-year period due to investments in new product promotions.” He added, “In the Home Care & Daily Beauty (HDB) segment, sales increased due to growth in online and emerging channels, but profits declined due to higher marketing expenses. In the Beverage segment, operating profit decreased by 19.9% due to slowing demand, rising costs, and intensifying promotional competition.” Non-operating expenses included a 58.5 billion won loss on the disposal of Avon.
For the fourth quarter, the cosmetics division is expected to return to profitability year-over-year, driven by a recovery in the duty-free sector and growth in the LG Corp. business in North America. He predicted, “The LG Corp. business in North America saw a 20% increase in sales in the third quarter, and this growth trend is expected to continue in November with the opening of The Face Shop and Hins stores at Ulta.”
However, he added, “This is insufficient to offset the slump in the China business, and costs related to a voluntary retirement program for sales promotion staff are also expected to be incurred. Furthermore, considering the base effect from one-time expenses (85 billion won) in the same period last year, it is difficult to interpret this profit improvement as a full-fledged recovery in profitability.”