LG Household & Health Care: beauty performances to satisfy spectators

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The author is a KB Securities analyst. She can be contacted at [email protected] – Ed.

Maintain the target price of KRW2.1mn; the stock’s steady uptrend should continue

We maintain BUY and our TP of KRW2.1mn on LG H&H. The company’s robust earnings are expected to continue, supported by impressive brand recognition and exceptional cost management capabilities. Thus, the title should continue its gradual uptrend.

The 618 shopping festival in China fueled the stock market momentum; Revenue / OP 2021 is expected to grow 9% year-on-year / 11% year-on-year

In January-May, the performance of LG H&H stock was stable, underperforming KOSPI by 15%. That changed in June as the stock jumped 13% to a new all-time high. We attribute the increase to the news of Whoo’s sales rising 70% year-on-year during the 618 shopping festival in China. For the full year, we forecast consolidated sales / PO growth of 9% year-on-year / 11% year-on-year. HDB / Refreshment OP is expected to slide 5% yoy / 2% yoy. However, the company-wide OP is expected to grow, with beauty sales / OPs improving 13% year-on-year / 18% year-on-year.

2Q21 Snapshot: Revenues / POs to Increase 19% YoY and 15% YoY, in Line with Market Consensus

We forecast a consolidated turnover of 2Q21 at KRW2.13tn (+ 19% YoY) and a PO at KRW349.5bn (+ 15% YoY), in line with the market consensus.

â–¶ Beauty sales / POs are expected to grow 34% YoY / 35% YoY POs. The turnover of the Chinese subsidiary is expected to increase by 35% year-on-year (+ 45% for Whoo; + 10% for S: um). Specifically, we estimate KRW89.3 billion (+ 70% yoy) of revenue coming in at 618 and KRW 207.0 billion (+ 24% yoy) for the remainder of the quarter. DFS revenue is expected to grow 105% year-on-year / 6% QoQ (DFS market growth estimated at 13-15% QoQ).

â–¶ HDB’s revenue is expected to grow 5% year-on-year, while OP is expected to dip 21% year-on-year (base effect). Hygiene product sales are expected to decrease by KRW 20.0 billion year-on-year, but this is expected to be offset by the addition of Physiogel (KRW 16.0 billion increase) and sales growth of the American subsidiary (+ 10.0 billion KRW). OPM is expected to decline by 3.5pp YoY, with hygiene products generating relatively high margins.

â–¶ Refreshments revenue is expected to grow 1% year-on-year, while OP is expected to decline 8% year-on-year. We expect OPM to fall 1.4pp YoY due to the impact of higher resin prices on COGS and slightly higher promotional spending.


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