LG Electronics shares surge to 52-week high on strong Q2 earnings forecasts

[Photo by Han Joo-hyung]

Shares of LG Electronics Inc. rose on the back of strong earnings forecasts, reaching a new 52-week high.

According to the Korea Exchange on Tuesday, LG Electronics’ shares has gained 48.21 percent this year. The stock rose to as high as 132,400 won ($101.82), marking a new 52-week high for the company. Foreign investors have also been buying the company stocks, with a net purchase of 138.6 billion won in the company this year alone.

The upward movement of the company’s stock is believed to be attributed to the company’s improving performance ahead of the second-quarter earnings conference call scheduled for Friday. According to local data tracker FnGuide, LG Electronics is expected to report an operating profit of 969.6 billion won for the quarter, which is a 22.4 percent increase year-on-year. The company’s estimated operating profit for the year is 4.42 trillion won, up 24.5 percent year-on-year.

The improvement is driven by even growth in both its traditional strength in the home appliances business and the new growth engine, the vehicle component solutions (VS) business, although the former is the immediate contributor to profits.

According to Hi Investment & Securities Co., the estimated operating profit from LG Electronics’ home appliance division for this year is 247.4 billion won, more than double the previous year’s figure of 113.2 billion won. The operating margin in the division is also expected to more than double, reaching 8.1 percent this year compared with 3.8 percent last year.

“Despite the overall slowdown in the home appliance industry, LG Electronics is experiencing improved profits thanks to its strong foothold in high-end products and an expanded market share in the mid-to-low-end market, as well as increasing demand for system air conditioners,” said Ko Eui-young, an analyst at Hi Investment & Securities.

Growth in the VS business is also supporting the stock.

LG Electronics’ VS division is expected to post sales of 10.59 trillion won this year, representing a 22 percent year-on-year increase, according to EBest Investment & Securities Co. The division’s operating profit is projected to reach 306 billion won, which is 1.8 times higher than last year’s 170 billion won. The share of the VS business in the company’ total sales has been steadily increasing, standing at 14.8 percent as of the first quarter.

The VS division is anticipated to become the second-largest business segment of LG Electronics after home appliances by 2025, benefiting from the expanding electric vehicle market. Specifically, LG Magna e-Powertrain Co., a supplier of motors for EVs, is expected to grow at an average annual rate of 50 percent between 2020 and 2025.