4Q20 Earnings to Hit Record High
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY and target price of KRW120,000; beneficiary of KRW appreciation
We maintain BUY and our TP of KRW120,000 for LGE. Over the past decade, KRW appreciation has coincided with a 42% increase in stock price. The company’s business structure provides a particularly effective hedge between different currencies (e.g., USD, EUR and JPY), better positioning LGE than its seven domestic IT counterparts when KRW appreciation shrinks earnings. Amid current USD weakness leading to bullishness for emerging market currencies, KRW should continue to appreciate into 2021. HE (TVs) procures display components (e.g., LCD/OLED panels) in USD, so the division’s cost reductions arising from KRW appreciation should result in profitability improvement.
4Q20 earnings to hit record high
The major reasons behind LGE’s 4Q earnings slumps over the past decade were growth in HE and MC (smartphones) inventories held by distributors and the related increases in cost. For 4Q20, however, we see little chance for inventory-related cost increases, as we estimate LGE’s global TV distributor inventory level to be four weeks, falling below the appropriate level of six to eight weeks and the 4Q19 inventory level (10 weeks). At present, smartphone inventories are at 50% of last year’s levels, so this limits the chance of losses spiking. All things considered, we forecast 4Q20 OP to skyrocket 442% YoY to KRW551.6bn, which would mark the highest 4Q earning result ever recorded.