Samsung Vs. LG
With the release of second-quarter earnings results, Samsung Electronics and LG Electronics, the two biggest consumer electronics giants, show a wider gap in not only performance but also stock prices and market capitalization. The key to LG Electronics narrowing the gap is how the company will run a business at the Mobile Communications (MC) division, the biggest factor of its poor performance, in the second half of the year.
According to the Korea Exchange (KRX), the country's bourse operator, on July 21, Samsung Electronics posted 60 trillion won (US$53.62 billion) in sales and 14 trillion won (US$12.51 billion) in operating profits in the second quarter, reporting results above market expectations. On the other hand, LG Electronics reported sales of 14.56 trillion won (US$13.01 billion) and operating profits of 664.1 billion won (US$593.48 million) over the same period, posting results below market expectations.
The results were immediately reflected in stock prices. After announcing the second-quarter preliminary results on the 7th, Samsung Electronics closed at 2,393,000 won (US$2,138.52). However, it increased 6.7 percent to close at 2,553,000 won (US$2,281.50) on the 21st. In particular, Samsung shares hit several records in recent days since they topped 2.5 million won (US$2,234.14).
By contrast, LG Electronics closed at 73,900 won (US$66.04) on the 7th but decreased 7.4 percent to close at 68,400 won (US$61.13) on the 21st. Considering major stock indexes, the company needs more time to recover from its earnings shortfall.
LG Electronics’ price earnings ratio (PER) stood at 161.61 percent, far above 16.17 percent of Samsung Electronics. The PER is a ratio for valuing a company that measures its current share price relative to its per-share earnings. It tells you how much an investor is paying for each $1 in earnings per share a stock. Simply put, a low PER means that a stock is undervalued, while a high PER means that a stock is overvalued.
In addition, Samsung Electronics’ return on equity (ROE) reached 13.87 percent as of the first quarter, while LG Electronics’ recorded at 5.96 percent. The ROE is a profitability ratio that measures the ability of a firm to generate profits from its shareholders investments in the company. In short, the higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.
Under the given circumstances, the securities industry has a mixed outlook for the two companies. It offered a positive prospect for Samsung Electronics, saying the company can become the number one company in the global market beyond the domestic market. However, it said investors should not purchase LG Electronics’ shares for a while and wait for the right timing.
Kim Rok-ho, an analyst at Hana Financial Investment, said, “Samsung Electronics will see its sales increase in the semiconductor and display sectors as well as mobile devices in the next two to three years. For display, the company will supply OLEDs to new customers in earnest in the second half of this year so its performance is expected to improve further next year.”
However, there is a predominant view that LG Electronics has gloomy future, saying the company will not be able to recover without drastic measures for its smartphone business. Kwon Sung-ryul, an analyst at Dongbu Securities, said, “The company has improved the quality of its smartphones and raised marketing costs. But, it failed to increase sales and make profits in the MC division. Accordingly, there is a growing concern over smartphones again and it is a time to come up with measures.”