Despite Record High Sales, LG Electronics’ Stock Price Fell 34% from Peak in March

LG Electronics is drawing attention in the stock market as its stock price is still falling though it posted record-high sales and operating profits in the first half of this year. Analysts say that the company’s consumer electronics business is showing strong growth due to the rise in air conditioner sales in the heat wave, but the chronic phone business deficit is holding the company back."

LG Electronics closed down at 74,800 won on July 31, down 400 won (0.53%) from the previous day. After it announced on July 27 that its sales and operating profit for the first half of the year recorded the highest, its stock price declined for the three consecutive trading days. The company's sales reached 30.14 trillion won, up 3.2% from the first half of last year, while its operating profit jumped 18.5% to 1.87 trillion won.

Market response is not good even with the company’s robust performance. Foreigners have sold LG Electronics’ shares for 16 consecutive trading days since July 10. As a result, LG’s stock price dropped 34 percent from 113,500 won, the highest point recorded on March 13.

Lee Won-shik, a researcher in Shinyung Securities said, “There was disappointment with the worsening deficit in mobile communications (MC) division while the overall marketing cost has been increasing.”

The MC division posted operating losses of 119.9 billion won in 2015 and 1.26 trillion won in 2016. As the deficit was reduced to 213.2 billion won last year, expectations grew in the market that it would turn to black soon. However, the deficit widened this year, leading disappointed foreigners to sell their shares. LG Electronics' MC division posted an operating loss of 185.4 billion won in the second quarter, which is 8.9% bigger than the same period last year.

The vehicle component (VC) business also fell short of expectations by recording an operating loss of 32.5 billion won, which is bigger than a year ago. Kim Ji-san, a researcher at Kiwoom Securities, said, "The quantitative and qualitative leap in auto parts business is being delayed."

Some worry that LG Electronics is repeating its typical tendency of high performance in the first half and low in the second half. Ten securities firms including NH Investment & Securities, Shinhan Investment, Shinyoung Securities and KTB Investment & Securities lowered their target price for LG Electronics this month.

Meanwhile, Korea Investment & Securities raised LG Electronics' target price to 105,000 won. Jo Chul-hee, a researcher at Korea Investment & Securities, said, "In the fourth quarter, ZKW, an Austrian lighting systems producer, will be included in LG’s performance and expectations for earnings improvement in the first half of next year will be reflected."