LG Electronics shares soar on hopes earnings will improve this year

[Photo by Han Joo-hyung]

Shares of LG Electronics Inc., an electronics giant under South Korea’s LG Group, rose to a 52-week intraday high on Monday on expectations its home appliances (H&A) and new growth engine automotive electronics businesses are expected to deliver earnings growth.

On Monday, shares of LG Electronics gained 3.33 percent to close at 127,200 won ($97.32), the highest closing price since 127,500 won in March 3 last year. The stock rose as much as 4.71 percent to 128,900 won during the day, setting a new 52-week high. The company’s shares have soared 47.05 percent this year alone, with foreign investors net buying the stock worth 605.4 billion won.

The stock, in fact, had fallen 37 percent last year as demand for home appliances, the company’s cash cow, turned to a downward trend and profitability greatly deteriorated on raw material price hikes and rising logistics costs.

However, expectations are rising that the company’s earnings will improve this year. According to market data tracker FnGuide Inc., LG Electronics is expected to post an annual operating profit worth 4.4 trillion won this year, up 24 percent from 3.55 trillion won a year ago. It is also 12 percent higher than the previous estimate of 3.93 billion won at the end of March. The operating profit margin is also expected to rebound to 5.1 percent.

The company’s home appliances, which has traditionally been a focus for growth, is expected to lead improvement in its earnings. According to Eugene Investment & Securities Co., the division’s annual operating profit this year is expected to double to 2.31 trillion won, from 1.13 trillion won in the previous year. Estimates are improving as raw material prices are normalizing fast and as the company diversifies its customers by expanding the business to include business-to-business (B2B) in addition to business-to-consumer (B2C).

“Home appliance sales are expected to top 30 trillion won in four years with an expanded market share after exceeding 20 trillion won in 2019,” said Kim Dong-won, head of research center at KB Securities Co. “This is because the proportion of B2B sales, including sales of system air conditioners and built-in home appliances, are continuously increasing.”

The rise of the VS business, an emerging growth engine at LG Electronics, is also playing a part in driving up the stock price. Analysts note that the VS division will emerge as the second-largest business for the company in 2025 with the expansion of the electric vehicle (EV) market.

According to Hi Investment & Securities Co., VS division’s profit is expected to grow rapidly to 273 billion won this year from 170 billion won last year and then to 394 billion won next year. The backlog of orders in the VS division is likely to increase to 100 trillion won this year from 60 trillion won in 2021 and 80 trillion won last year. “Sales of electronic devices and parts are expected to reach the highest level amid growing orders for EV parts,” Kim said.

There are views that the stock has potential for greater increase given the pace of growth in the VS division. Hana Securities Co., which set a target price of 168,000 won for LG Electronics, said it can be raised further to as high as 195,000 won if the value of the company’s VS business is reflected. The brokerage house also advised investors to keep an eye on LG Magna e-Powertrain Co., a joint venture between LG Electronics and the world’s third-largest auto parts manufacturer Magna International Inc. aimed at supplying EV motors.

“The contribution of Magna, whose clients include all three U.S. automakers, will be reflected in earnings from 2025,” said Kim Rok-ho, an analyst at Hana Securities. “The Magna element has to be reflected in the valuation of the VS division as Magna is highly likely to be a part of the U.S. EV market growth.”