2023E VS Revenue of KRW10.8tn (+20% YoY)
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY but revise down TP to KRW110,000
We maintain BUY on LG Electronics (LGE), but revise down target price from KRW120,000 to KRW110,000. We have revised down 2023E earnings by 14.6% considering decreasing TV shipments and equity-method losses for LG Display. HE (TV) has been suffering from declining OLED TV demand as surging energy prices in Europe undermine consumers’ real spending power. Market conditions in 2023 should make substantial increases in OLED TV shipments difficult also as soaring inflation rates force price cuts. Meanwhile, VS (automotive electronics) has been enjoying order intake growth (mainly, infotainment systems) thanks to the company’s access to various communication technology (e.g., 5G), keeping earnings in the black for two quarters in a row after trudging in the red for nine years. As such, the company’s earnings structure is likely to shift its focus from B2C to B2B in the mid/long run.
4Q22E OP of KRW736.7bn (-1% YoY)
We forecast 4Q22E consolidated (incl. LG Innotek) revenue of KRW22.8tn (+9.8% QoQ, +7.7% YoY) and OP of KRW736.7bn (-1.3% QoQ, -1.1% YoY; KRW587.8bn, +37% YoY for LG Innotek). We see earnings retreating as the performance of all business units (excl. VS) contract as the slowing economy undermines consumer sentiment. VS, meanwhile, has achieved structural growth and has been averaging KRW2.4tn in quarterly revenue since 2Q22. VS should see such solid earnings continue amid an increase in automakers’ output upon the dissipation of chip shortage issues.
2023E VS revenue of KRW10.8tn (+20% YoY)
We forecast 2023E revenue of KRW87.2tn (+3.3% YoY) and OP of KRW4.1tn (-3.0% YoY); earnings should be solid despite a business structure centered around durable goods (e.g., home appliance, TV). VS should post revenue of KRW10.8tn (+20.2% YoY) and OP of KRW265.8bn (+41.5% YoY; 2.5% OPM). Shares in LG Electronics (closing price of KRW81,200 as of Oct 20) are currently trading at historical lows (0.7x 2023E P/B), suggesting limited downside. Potential share-price catalysts include: (1) increased earnings contributions by VS; (2) recovery in HE earnings, driven mainly by OLED TV; and (3) improvements in equity-method income for LG Display.