DAISHIN SECURITIES on the 30th said LG H&H is inevitably set to see a slowdown in companywide profitability due to a downsizing of the duty-free channel driven by restructuring in the beauty business and a sluggish Chinese economy. Accordingly, it maintained its investment opinion at "marketperform" (marketperform) and its target price at 290,000 won.
Jeong Han-sol of DAISHIN SECURITIES said, "Although efforts are underway to secure non-China growth drivers in line with consumption trends, the contribution to results is limited," adding, "Household goods and beverage businesses are defending the downside in results, but weakness in beauty is a factor expanding short-term earnings uncertainty."
He added, "Depending on the outcome of the restructuring, in the mid to long term one can expect improvements in the beauty business structure and strengthened brand competitiveness, but a conservative approach is needed until normalization of the China business and tangible results in overseas markets such as North America and Japan become visible."
DAISHIN SECURITIES expects LG H&H's third-quarter sales and operating profit this year to be 1.6295 trillion won and 48.1 billion won, respectively. In particular, it sees the cosmetics segment's sales at 575.3 billion won and an operating loss of 30.7 billion won, projecting weakness as intensive restructuring leads to a reorganization of domestic traditional channels and a continued slowdown in demand for luxury cosmetics in China.
Jeong said, "To normalize local distribution in China and restore proper pricing, supply volumes to the duty-free channel are being adjusted, with duty-free sales down 45% year over year, and the local China business is likely to continue posting losses amid delayed consumption recovery and intensifying online competition."
He added, "While the company is seeking to improve profitability by ensuring the soundness of its local business and expanding domestic online and H&B channels, short-term damage to results is unavoidable," and "In North America and Japan, strategic brands such as Belif and CNP are continuing to grow, but their share is small, so their contribution to overall results is limited."