Meritz Securities on the 17th said it expects LG Electronics' separate operating profit to rise next year for the first time in three years. It raised its target price to 120,000 won from 115,000 won and kept a "buy" rating. LG Electronics' closing price in the previous session was 93,100 won.
In the fourth quarter this year, LG Electronics' revenue is expected to rise 3.7% on-year to 23.6 trillion won, while operating profit is forecast to drop 82.5% to 23.8 billion won. Thanks to solid results at consolidated subsidiary LG Innotek, operating profit is likely to beat the market consensus of a 18.2 billion won loss.
On a separate basis for LG Electronics, a 374.7 billion won operating loss is expected as one-off expenses related to voluntary retirement coincide with the seasonal off-peak period. However, excluding about 300 billion won in one-off expenses related to voluntary retirement, a slight year-over-year improvement is anticipated, driven by better results at the vehicle component solutions (VS) division.
Next year, on a separate basis, revenue is estimated at 69.6 trillion won, up 3% on-year, and operating profit at 2.6 trillion won, up 40%. Yang Seung-su, an analyst at Meritz Securities, said, "The one-off expenses related to voluntary retirement reflected in the second half of this year will turn into fixed-cost savings starting next year," and added, "From a logistics cost standpoint as well, considering the decline in freight indexes, conditions are forming that are favorable for profitability improvement."
On the topline, market share gains centered on emerging markets such as India and Latin America, along with the effect of price hikes in the United States implemented in response to tariff issues, are expected to gradually be reflected in results starting next year.
Yang said, "From a share-price perspective, attention should be paid less to short-term results and more to the high visibility of earnings growth next year; the ongoing possibility of mergers and acquisitions in new businesses funded by cash raised through the India subsidiary's initial public offering (IPO); and the fact that the company has already built a mid- to long-term business base in humanoids."
He added, "At the current share-price level, where a still-low valuation is being maintained, we judge there is more upside based on a re-rating than downside."