MERITZ Securities analyzed on the 19th that LG H&H recorded an earnings shock due to the restructuring of duty-free shops in the second quarter. LG H&H's stock price is showing signs of attempting to escape the bottom as the poor performance continues and it enters a full-scale business restructuring. The target stock price for LG H&H is 336,000 won, and the investment opinion is rated 'neutral.'
LG H&H's consolidated operating profit for the second quarter of this year is 54.8 billion won, a 65% decrease compared to the same period last year. The reasons for the poor performance include a decline in sales from the cosmetics business, particularly in duty-free shops (-37%) and online/specialty channels (-20%). Sales in the beverage business also decreased by 4% due to sluggish domestic consumption and weather impacts, leading to an 18% reduction in operating profit.
Sales in North America and Japan show a rising trend, but the heavily dependent Chinese business is also struggling. LG H&H's reliance on China peaked at 68% in 2021 but has declined, recording 45% last year, which is still a high level. However, while marketing expenditure in China is increasing, sales are decreasing, exacerbating the poor performance.
LG H&H is restructuring, including efforts to streamline personnel and operations. With restructuring taking place in the Chinese and duty-free businesses, the expectation is that poor performance will continue for the time being. However, evaluations suggest that there is still potential for a rebound in stock prices once the effects of the restructuring become apparent.
Park Jong-dae, a researcher at MERITZ Securities, noted, "The fact that there are no clear alternatives after restructuring due to a business structure concentrated on China and some luxury cosmetics brands is a challenge to be addressed." However, he added, "The operating profit is expected to turn to an increase due to the base effect from last year in the fourth quarter, and if the sales recovery in the Chinese market becomes visible due to the lifting of the restrictions and the Korean wave effect, a performance rebound is anticipated."