Kiwoom Securities on the 23rd projected that LG H&H's third-quarter cosmetics business loss will widen from the second quarter. Accordingly, it lowered the target price to 270,000 won from 290,000 won and maintained a neutral (market perform) investment rating.
Kiwoom Securities said LG H&H is expected to post third-quarter revenue of 1.6047 trillion won and operating profit of 48.1 billion won, falling short of market expectations (consensus). Both figures are down 9% and 57%, respectively, from a year earlier. The cosmetics division's widening loss, due to a shrinking domestic market and weak China performance, is forecast to weigh on results.
The cosmetics division is forecast to log revenue of 509.8 billion won and an operating loss of 57.7 billion won. By channel, domestic channels are expected to contract 11% year over year, and China revenue is projected to decrease 5%. In particular, the duty-free channel is expected to drop 45%, showing the steepest decline. Although a 13% revenue increase is expected in North America, its impact on overall results is likely limited given the revenue mix.
By contrast, the household goods division is expected to see revenue of 579.5 billion won and operating profit of 45.2 billion won, and the beverage division revenue of 515.4 billion won and operating profit of 57.7 billion won.
Researcher Jo So-jung of Kiwoom Securities said, "In the third quarter, the impact of domestic channel realignment will be larger than in the second quarter, and losses in the China channel are also expected to widen," and analyzed, "While such effects will be difficult to resolve quickly, channels with high growth potential still have limited profit contribution, making it likely that weak results will continue."