Korea Investment & Securities Co. on the 30th kept its neutral rating, saying LG H&H's beauty division's sluggish results are likely to continue this year.
Korea Investment & Securities Co. projected LG H&H's first-quarter revenue at 1.6628 trillion won and operating profit at 49.1 billion won this year. Those are down 2.1% and 65.5%, respectively, from a year earlier. It especially said operating profit is likely to miss the market consensus by 5.8%.
Kim Myeong-ju, an analyst at Korea Investment & Securities Co., said, "With the recovery in domestic consumption, the household goods division and beverage division will improve from a year earlier," but added, "Because the beauty division's operating loss is continuing from the fourth quarter of last year, first-quarter results will likely fall short of market expectations."
The main reasons cited for the beauty division's weakness were the duty-free channel and softness in the China market. Kim expected, "Duty-free channel sales for the beauty division will come to 40.8 billion won, down 10% from the previous quarter, and China sales will be similar to a year earlier at around 153.5 billion won."
Kim added, "This year as well, the company plans to continue controlling volumes to restore brand power in the duty-free channel, and considering that LG H&H's brand power in overseas markets such as the United States and China is unlikely to recover in the short term, the point at which the beauty division escapes operating losses is highly likely to be after the fourth quarter of this year."
Given this situation, the current stock's valuation is seen as burdensome. Kim said, "As Chinese consumers' cosmetics consumption patterns change, even if the China market recovers going forward, it will be difficult for LG H&H to benefit as much as in the past," adding, "Since the beauty division's contribution to companywide profit has fallen sharply, the current valuation is at a burdensome level."