LG Electronics
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com -- Ed.
We expect LGE to post sound 1Q23 results on cost reduction effects. Full-fledged earnings expansion looks possible in 2H23 alongside expected stronger demand and decreased automotive electronics costs. Also attractive is the firm’s EV parts business on rising orders from existing clients and higher backlog via customer diversification.
Cost reduction at home appliances arm; appealing growth of automotive electronics for EVs
Despite sluggish demand for home appliances and TVs amid global macro deterioration, we expect LG Electronics (LGE) to deliver sound earnings thanks to preemptive inventory adjustments and cost savings. Considering both the diversification of customers and products at its automotive electronics domain and the strong possibility of a recovery in demand for home appliances in 2H23, we view the company’s shares as being attractive at their current price point.
Looking at the home appliance division, margins are recovering faster than expected thanks to preemptive inventory adjustments amid the normalization of extremely high transportation costs. In addition, it is also positive that stable demand and improved profitability have been achieved thanks to a widening sales portion for the HE division, backed by an active B2B growth policy.
The automotive electronics division is showing stable sales growth based on sound order backlog. In the infotainment division, sales of high value-added products are expanding. LG Magna E-Powertrain offers appeal in that it is diversifying its clients to European firms amid the expansion of existing customers’ orders. But, LGE’s loans to LG Display have come as a surprise, representing a bit disappointing in terms of shareholder value.
Expect full-fledged profit growth in 2H23; automotive electronics order backlog to grow further
We now expect LGE to show solid 1Q23 OP of W1,236.1bn (-34.3% y-y, +1,684.4% q-q), exceeding our previous estimate. Profitability will likely decrease slightly q-q in 2Q23 due to increased marketing expenses, but profit should increase on a y-y basis.
Particularly warranting attention, full-fledged profit growth looks possible in 2H23 alongside both an anticipated recovery in demand for home appliances and TVs and cost reduction effects at the automotive electronics division. We expect to see high growth of automotive electronics order backlog as well.