Sangsangin Securities has upgraded its investment opinion on LG Household & Health Care from 'Hold' to 'Buy' due to a recent decline in stock prices, which has widened the gap between the target price and current stock price. The firm also raised its target price from 330,000 won to 350,000 won, reflecting an increase in valuations across the global industry. However, it anticipates limited short-term improvement in performance.
Analyst Song Ji-yeon explained, "The widening gap between the target price and current stock price due to the recent decline has prompted us to upgrade our recommendation from Hold to Buy, and we have also increased the target price to 350,000 won to reflect the rise in multiples in the global industry." The price-to-earnings ratio (PER) used for the target price calculation was raised from 16.6 times to 17.5 times.
Nonetheless, the firm expects LG Household & Health Care's third-quarter performance to fall short of market expectations. Sangsangin Securities forecasts the company's third-quarter revenue to increase by 3.1% year-on-year to 1.6284 trillion won, while operating profit is expected to rise by 101.5% to 93.1 billion won. This operating profit is below the market consensus of 103.4 billion won, according to financial information provider FnGuide.
In the cosmetics division, revenue is projected to reach 718.5 billion won, with operating profit of 21.6 billion won, reflecting an 8.5% increase year-on-year and a return to profitability. Duty-free sales are expected to remain stable at around 90 billion won, similar to the previous quarter. However, in China, the reduction in live broadcasts and seasonal factors are anticipated to exacerbate revenue declines and continue losses. In North America, the exclusion of Avon from consolidated results starting in September is expected to result in a monthly revenue decline of about 20 billion won.
In the household goods division, revenue is expected to decline by 0.2% year-on-year to 402.9 billion won, with operating profit down 6.5% to 29.9 billion won. The impact of store closures at Homeplus is estimated to be partially offset by the effects of Chuseok gift sets and collaborations with YouTubers. The beverage division is projected to see revenue of 507 billion won and operating profit of 41.6 billion won, reflecting declines of 1.1% and 33.5%, respectively. Analysts attribute this to sluggish domestic beverage consumption, rising raw material costs, and promotional expenses impacting profitability.
Song noted, "The strong performance in North America in the second quarter was driven by favorable factors such as expanded inventory management at Costco and initial shipments to Sephora. However, in the third quarter, we expect a decline in cosmetics operating profit due to increased marketing expenses. Additionally, the seasonal downturn in the beverage business will likely limit overall profit improvement in the fourth quarter."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.