|An LG Electronics employee works on an OLED TV production line at the company's factory in Mexico, Nov. 16. LG said it is operating its TV manufacturing lines at full capacity to meet the soaring demand for TVs in North America ahead of the year-end shopping bonanza. / Courtesy of LG Electronics|
By Baek Byung-yeul
For retail investors, "buy LG Electronics stocks in December and sell them before summer comes" has apparently long been a tacit "rule" because the company, which mainly generates profits by selling home appliances, has been greatly influenced by the ebbs and flows of the business cycle.
However, this rule is seemingly becoming outdated as the home appliance giant is seeing different results this year thanks to consumers spending increasing amounts of time at home due to the COVID-19 pandemic.
LG has become stronger than ever as its two cash cow businesses ― home appliances and TVs ― have been enjoying soaring sales with more people having to stay at home.
Despite the overall pandemic-driven economic fallout, industry analysts say LG Electronics has managed to perform better this year as social restrictions have encouraged people to upgrade their appliances and TVs.
As a result, LG Electronics saw its best-ever third quarter earnings, logging an operating profit of 959 billion won ($868.3 million), up 22.7 percent year-on-year. It also posted sales of 16.9 trillion won, a 7.8 percent increase from a year ago.
Industry analysts added the company is expected to post even better earnings in the following quarters because more people are paying attention to health and personal hygiene products, and its high-priced OLED TVs are increasingly attracting consumers who want to enjoy sharper picture quality.
The company has also been putting an effort into the vehicle component business as its next growth engine. Analysts note that its effort to be a more well-rounded company is going to pay off next year as sales of vehicles using LG's infotainment systems, along with components used in electric vehicles (EVs), will expand.
LG still thinks there exists business uncertainty due to the slow recovery of the real economy, which has been heavily affected by the COVID-19 pandemic. Nevertheless, the company expects there should be new business opportunities as the stay at home trend has changed spending patterns.
"It is predicted that the COVID-19 pandemic will serve as momentum to raise brand awareness. Efforts to expand online sales, new growth products, and OLED TV sales will be continued to maintain this," a company official for investor relations told investors during the third quarter earnings conference call last month.
Expecting demand for its OLED TVs will shoot up over the upcoming holiday season in the North American market, LG said operations of its TV production lines in Mexico were at full capacity.
"Ahead of the year-end peak season from Black Friday to Christmas, our TV production lines in Reynosa, Mexico have recently increased production capacity by 30 percent compared with the same period last year. This is to meet expanded TV demand in the North American market," LG said.
Sales of LG's high-priced OLED TVs in the North American market in the fourth quarter are expected to increase by more than 20 percent year-on-year, according to market researcher Omdia. Global shipments of OLED TVs are forecast to reach over 1 million in the October to December period.
|LG Electronics Chief Technology Officer I.P. Park, right, and Lee Sang-yong, head of the firm's automotive and business solutions center, pose while recharging an electric vehicle using a charger made by LG's EV management system at a GS Caltex EV charging station in Seoul, Nov. 18. / Courtesy of LG Electronics|
Vehicle component biz seeking turnaround in 2021
LG's vehicle components division is expected to see a turnaround next year. In the July to September period, the division continued to post a deficit ― an operating loss of 66.2 billion won on sales of 1.66 trillion won.
LG expects it will be able to see a turnaround in the money-losing business starting in the third quarter of 2021.
"As we made preparations for new projects compared to growth in the market, we are maintaining a high growth of 20 percent. We have made structural efforts to strengthen our software capabilities and improve in terms of our fixed costs. So, we believe that we will be able to achieve a turnaround from the third quarter 2021," the company told investors last month.
Industry analysts estimated the division has generated around 50 percent of its sales from the infotainment business, 30 percent from automotive lighting and 20 percent from EV components.
Given EV components have higher margins than other automotive parts, an analyst said increasing EV sales will help buoy the company's performance.
"Among the division's remaining backlog, orders from General Motors account for the largest part," Ju Min-woo, an analyst at Meritz Securities, said. "As EV production of General Motors will be in full swing starting 2022, the financial condition of the division will stabilize in 2022."
Analyst have forecast the components division will see a turnaround in 2021 as EVs from non-Tesla manufacturers such as Hyundai Motor, Volkswagen and General Motors will be released next year.
To expand into the business, LG Electronics is actively cooperating with oil companies. The company said Nov. 18 that it has supplied energy management systems used in fast-speed EV chargers installed at GS Caltex's newly-opened EV charging station in Seocho-gu, southern Seoul.
LG has cooperated with the GS since 2019 to provide software and hardware used in the chargers at the EV charging station.