[Click eStock] "LG H&H, Earnings Visibility Improves... Upgraded to 'Buy'"

Hanwha Raises Rating from "Neutral" to "Buy"
Target Price Upgraded from 280,000 to 350,000 Won

Hanwha Investment & Securities upgraded its investment rating on LG Household & Health Care from 'neutral' to 'buy' and raised its target price from 280,000 won to 350,000 won, noting that the company’s earnings visibility has improved.

Yoojeong Han, a researcher at Hanwha Investment & Securities, stated on August 5, "Until now, it was difficult to apply a proper valuation to LG Household & Health Care because low earnings visibility persisted due to controlled duty-free supply, restructuring in its China operations, and underperformance by overseas subsidiaries." She added, "However, losses from duty-free and China have now stabilized to a manageable level, and North America has emerged as a key profit driver, which increases both the company’s performance direction and predictability."

LG Household & Health Care’s second-quarter results also beat market expectations. Revenue amounted to 1.6574 trillion won, up 3.3% year-on-year, and operating profit surged 87.5% to 102.8 billion won. Although a one-off U.S. tariff refund of 15 billion won was included, operating profit still increased by about 60% even after excluding this impact compared to the same period last year.

In North America, driven by three-digit growth of the Dr.Groot brand, revenue reached 205.8 billion won. This figure surpassed sales in China for the first time, and the proportion of in-house brands increased to 50%. Han explained, "While China continued to post a deficit due to new product promotions, duty-free sales recovered quarter-on-quarter thanks to growth in non-Cheonggidang SKUs and FIT demand, while restructuring efforts enabled the company to maintain a double-digit operating margin."

In the second half of the year, the company is expected to escape from operating losses. Han estimated that LG Household & Health Care will swing to profitability on a consolidated basis, forecasting revenue of 3.365 trillion won and operating profit of 183 billion won for the second half. She said, "Despite cost pressures stemming from the Middle East and a high North American base, a reduction in losses from the beauty segment is expected to drive overall profit growth."

Specifically, she commented, "While duty-free channels will continue controlled supply through year-end to digest second-generation Cheonggidang inventory, I expect both sales and profitability to improve in the second half driven by a low base and increased SKU and FIT demand." She further noted, "Even as China overhauls its online sales structure, offline per-store sales are improving, thereby strengthening the business fundamentals."

Growth is also expected to continue in the North American business. Han said, "In North America, growth momentum will continue due to the expansion of Dr.Groot SKUs at Costco and entry into all Sephora stores. Although the accelerated channel expansion for Dr.Groot began in the third quarter of last year and there is a difference in Prime Day timing, meaning the growth rate may slow in the second half, the overall profitability of the North American business will likely remain strong thanks to greater in-house brand share and a more premium product mix."

This content was produced with the assistance of AI translation services.