LG Electronics Inc
KRX:066570
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
87 700
113 900
|
| Price Target |
|
We'll email you a reminder when the closing price reaches KRW.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
LG Electronics Inc
You don't have any saved screeners yet
Good morning and good afternoon. Thank you for joining LG Electronics Earnings Release Conference Call for the Fourth Quarter of 2021. This conference call will start with a presentation on the earnings results, followed by a Q&A session. [Operator Instructions] I would now like to hand the conference over to the first speaker.
[Interpreted] Good afternoon. My name is Sang Bo Sim from Investor Relations. Thank you for joining LG Electronics earnings release conference call for the fourth quarter of 2021. With me are representatives of each business management division, Mr. I-Kueon Kim from Home Appliance and Air Solution; Mr. Jeong Hee Lee from Home Entertainment; Mr. Ju Yong Kim from Vehicle Component Solutions; Mr. Choong Hyun Park from Business Solutions. We are also joined by Mr. Sang-Ho Park from Global Business Management Group; Mr. Hyungyu Lee from Finance Division; and Mr. Hong Su Lee from Accounting Division. .
Please note that all statements we will be making today regarding our financial results of the fourth quarter are subject to change in accordance with the result of the external audit. I would also like to remind you that uncertainties in the market and changes in strategies may cause our results to be different from the outlooks and forward-looking statements made today.
Today, I will outline the overall performance results of the fourth quarter of 2021 and the outlook for the year 2022 and the first quarter. After that, each division will take turns to deliver its business results and outlook. Now let me start with the consolidated financial results of the fourth quarter of 2021 and the outlook for 2022 and the first quarter.
Consolidated sales of the fourth quarter was KRW 21 trillion and operating profit was KRW 677.7 billion. Sales grew 21% year-on-year, driven by growth in overseas markets for H&A and increased sales of OLED TVs in HE. Though affected by rising raw material and logistics costs, we recorded sound performance in operating profit by shifting our revenue structure to focus on premium products.
I will now briefly review the fourth quarter performance of each business. H&A recorded KRW 6.5 trillion in sales, KRW 157.1 billion operating profit and 2.4% in profitability. HE recorded KRW 5 trillion in sales, KRW 162.7 billion in operating profit and 3.3% in profitability. VS recorded KRW 1.7 trillion in sales and KRW 53.6 billion in operating loss. BS recorded KRW 1.7 trillion in sales and KRW 35.1 billion in operating loss. Each business will later share its respective business results and outlook in detail.
Let's move on to the profit and loss and cash flow of the fourth quarter. In terms of profit and loss, reflecting financial income and expense, equity method gain and loss, other nonoperating income and expense, corporate income tax and income and loss from discontinued operations, we posted KRW 21.3 billion in net income.
Next, on cash flow. Cash flow from operating activities of the fourth quarter was KRW 441.7 billion, and cash flow from investment activities was negative KRW 391.8 billion. As a result, net cash flow amounted to KRW 18.8 billion. And when reflecting cash flow from financial activities of negative KRW 596 billion, net change in cash decreased by KRW 577.2 billion. After reflecting changes in cash held for sale of KRW 8.9 billion cash balance at the end of the fourth quarter came to stand at KRW 6.1 trillion.
Next is the key financial position and indicators for the fourth quarter of 2021. As of the end of the fourth quarter, our assets stood at KRW 53.5 trillion, liability at KRW 33.4 trillion and equity at KRW 20.1 trillion. In terms of leverage ratios, though there was a slight increase in net debt to equity, liability to equity and debt to equity all decreased quarter-on-quarter and year-on-year, and we continue to maintain a healthy financial condition.
Next is the outlook for the year 2022 and the first quarter. In terms of the macro environment, following last year, difficulties may persist as uncertainties remain with the spread of the COVID-19 variant, continued supply chain issue and increase of raw material and logistics costs. Amidst this environment, we will strengthen business competitiveness by solidifying our position in the premium segment and focus our capabilities on responding to the external environment and cost structure risks.
In line with this direction, we seek to continue generating stable profit together with revenue growth in 2022. We project our first quarter revenue, excluding LG Innotek, to grow year-on-year and expect a stable level of profitability on the back of revenue growth centered around premium products.
We will move on to the fourth quarter results and outlook by business. But before that, as disclosed on July 29, 2021, in adjusting our business portfolio, the CEM business was transferred from BS to LG Chem as of November 1, 2021. Now the business results and outlook, starting with H&A.
Let me share the fourth quarter results of H&A. Sales stood at KRW 6.5 trillion with an 18% increase year-on-year driven by growth in overseas markets such as North America. Despite the upside of revenue growth and marketing cost savings, operating profit decreased year-on-year due to increased raw material prices and logistics cost hikes.
Next is the outlook for the year 2022 and the first quarter. The global demand growth is projected to slow down and uncertainties and risks related to business operations are expected to persist as increased logistics and other cost burdens remain due to the imbalance in supply and demand. Amidst this environment, we will continue efforts to enhance sales armed with our product competitiveness and will focus our capabilities to secure stable profitability by increasing selling price and optimizing cost.
For the first quarter, we believe the impact from increased logistics costs will persist, but we plan to maintain solid profitability based on continued revenue growth in overseas markets. I will share the fourth quarter results of HE. Sales grew year-on-year despite the decrease of global TV demand. Thanks to expanded product sales of OLED TV. Though marketing costs increased due to intensified competition, we maintained sound profitability stemming from improved product mix focusing on premium products.
Now let me share the outlook for full year 2022 and the first quarter. In the market, global TV demand is projected to decrease slightly year-on-year as people spend less time at home, but we expect demand for premium products such as OLED TVs to be maintained. Accordingly, we will pursue continuous revenue growth and sound profitability by strengthening our market position in the premium products segment with increased sales of OLED TVs. For the first quarter, marketing cost is expected to rise with fierce competition in the global TV market, but we will secure solid profitability through revenue growth.
Let me share the fourth quarter results of VS. Sales recorded a decrease of 12% year-on-year and 3% quarter-on-quarter with the continued OEM production disruptions due to the supply shortage of automotive semiconductors. Though some cost reduction was achieved through efforts to improve profitability, operating loss continued due to the drop in revenue and increased cost burden from the semiconductor risk. Regarding the market environment in 2022. The automotive semiconductor risk may gradually ease from the second half based on collaboration among global OEMs, Tier 1 companies and semiconductor suppliers.
Meanwhile, our revenue growth and profitability improvement is expected to be limited with the continued semiconductor supply issue and subsequent disruption in auto production. So we expect the situation to improve after the first half in the short-term, difficulties are expected in achieving a turnaround in the first quarter.
I will share the fourth quarter results of BS. First, in line with efforts to adjust and enhance our business portfolio, the CEM business was transferred to LG Chem as of November 1, 2021. Fourth quarter sales grew quarter-on-quarter and year-on-year on the back of the seasonality effect in IT business and recovering demand in the B2B market.
Operating profit declined year-on-year despite the sound growth in revenue due to rising prices of major components and logistics costs and sluggish performance in the solar module business. Now the outlook going forward. There are both opportunities and risks in the market as the non-face-to-face trend continues along with instability in the global supply chain. But for monitors, the market is expected to expand for premium products such as gaming monitors. And for PCs, the demand for high-performance laptops is likely to remain.
For information display, demand in major verticals, namely retail, corporate and education is projected to increase fueled by recovering demand in B2B. We expect to further strengthen our market position in premium products such as gaming and high resolution monitors and Gram PCs in IT, and we will actively respond to sales opportunities in each vertical in line with the recovering market demand in Information Display.
That brings us to the end of the fourth quarter earnings release and outlook for the year 2022 and the first quarter. We will now take questions. Operator, please commence with the Q&A session.
[Interpreted] [Operator Instructions] The first question will be provided by Dongwon Kim from KB Securities.
[Interpreted] I have 2 questions on H&A. My first question is how did the rise in raw material prices and logistics disruptions affect you? And what is your response to this? And what's your outlook for the demand for home appliances in the global market this year? And my second question is, what is your premium home appliance business strategy in response to Samsung Electronics bespoke marketing.
[Interpreted] Let me answer your first question. In order to minimize the impact of rising raw material prices, along with globally integrated negotiations, we're fostering key makers in each region and making various efforts such as multi-sourcing and SCM optimization.
And as you know, due to the spread of Omicron variant and global port congestion, vessel schedule reliability is at record lows. This leads to container shortages and longer waiting times, further aggravating logistics cost burden.
And to save logistics costs we are making various efforts such as improving the efficiency of truck transportation and implementing activities such as mixed loading, maximization of container utilization rate and expansion of global direct shipment.
This year due to the resurgence of the COVID variant and accelerated tapering in the U.S. uncertainties in the global market this year are expected to grow versus last year. Until the current COVID situation subsides, we believe the demand for durable goods will remain largely flat versus last year.
Also throughout the pandemic over the past 2 years, new commerce platforms such as live commerce and Metaverse have rapidly emerged and the way consumers purchase products and their expectations for home appliances have also changed. They are now looking for emotional and innovative factors. Going beyond basic features.
In line with this change in consumer demand, we are closely monitoring the growth trends in each region and developing growth strategy to maximize sales with a focus on premium products and products with large capacity and high efficiency.
Now let me answer your second question. Even though we have launched our object collection, later than the competitors bespoke object collection has firmly established itself as space interior appliances.
With its differentiated product competitiveness including craft ice refrigerator and watch tower, object collection is writing a new history in the market. We ranked #1 in customer satisfaction with all different products making us the most frequent winner of the award in the home appliances sector for 6 consecutive years.
Whereas our competitors bespoke is now applied to all of its home appliance products. We are aiming a competitive edge with the differentiated strategy of having a well balanced portfolio centering around object collection including ultra premium signature and individual brands.
And this year, we are focusing our capabilities on enhancing customer experience for customer delight. At the core of our H&A business strategy is software upgradable appliances or what we call UP appliances. It refers to appliances that flexibly change and constantly evolve throughout customers' journey according to their lifestyle.
And in the era of digital transformation, we have built a customer data platform through various channels before our competitor did. In particular, ThinQ will play an essential role in providing customer care and upgrading their experience after the purchase.
Next question, please.
[Interpreted] The next question will be presented by Kangho Park from Daishin Securities.
[Interpreted] I have 2 questions. My first question is on VS. Due to the semiconductor shortage and a slowdown in production volume on the OEM side, you're experiencing supply constraints. And I'm wondering when do you think this constrained -- supply chain disruptions will ease? Also, when do you expect to make a turnaround? And my second question is on H&A. If the rise in raw material prices persist, your annual profitability will unavoidably decline. In this context, what is your strategy to secure profitability?
[Interpreted] Let me answer your first question on VS. The delay in making a turnaround was primarily driven by the decrease in OEM production due to the automotive semiconductor shortage and the increase in operational costs caused by price increase in semiconductor and supply constraints.
A slowdown in vehicle production due to supply constraint is expected to gradually ease on the back of collaboration between global OEMs, automotive part makers and semiconductor suppliers. However, uncertainties remain for certain components as the structural issue hasn't been fully resolved.
With new projects, sales have increased, and we have been making operational and fundamental improvements. That being said, in the short-term, risks associated with production disruptions on the OEM side due to the semiconductor shortage is expected to put upward pressure on cost. So profitability improvement is expected to be limited.
We will make efforts to make a turnaround as early as possible.
[Interpreted] Let me answer your question on H&A. Revenue growth in 2022 is forecast to decline year-on-year. And due to rising raw material prices, and logistics costs, profitability is expected to slightly decline year-on-year.
To offset the impact of the increase in raw material prices, we are working on expanding sales and increasing the ASP in each region at the same time.
And regarding our strategy to secure profitability, first of all, in North America, we expect to see a deceleration in demand growth from the levels we saw last year. But we are working on boosting revenue and securing profitability through differentiated products and supply stabilization.
And in Europe, as many countries are maintaining their flexible monetary policy stance, we expect consumer spending to remain largely unchanged, and we will continue to increase our market share by expanding sales of premium and high-end products and the coverage of cost-effective products.
And in Asia, with the easing of entry restrictions and increased vaccination rates, we believe there are opportunities for growth. We aim to further strengthen our market dominance by expanding sales with a focus on our differentiated hygiene and health-related home appliances. In the Korea market, we are launching new products related to our software upgradable appliances or UP appliances, increasing the ASP and implementing cost improvement activities to boost sales and improve profitability.
Next question, please.
[Interpreted] The next question will be provided by Simon Woo from Bank of America Securities.
[Interpreted] I have 2 questions. My first question is on the VS Company's LG Magna JV. Can you give us an update on LG Magna JV? Can you please provide details such as detailed products or your volume and your execution strategy in order to achieve high profitability and revenue? And then I have a follow-up.
[Interpreted] Since the establishment of LG Magna JV. There have been ongoing discussions about making concrete plans for collaboration in all areas. We have secured manufacturing competitiveness and purchase competitiveness and we are seeing some results with newly won projects by partnering with new channels.
And although, we cannot provide details as we have signed a contract with channels. In addition to existing North American channels, we have also won new European and Asian customers, thereby expanding our customer portfolio.
We believe, we are on track to achieve our mid- to long-term target, and profitability is also expected to improve.
Please continue with your next question.
[Interpreted] And my next question is on BS. Could you please talk about the BS business strategy? In the second half of last year, the business was in the red. And I would like to hear in detail, in particular, about your solar business, I don't believe we are seeing expected results from the solar PV business. So what are your strategy down the road?
[Interpreted] Over the past 2 to 3 years, the BS business has experienced challenges caused by the dramatic changes that took place in the external environment brought on by COVID. But by embracing and overcoming such challenges, we're growing externally, exceeding pre-COVID levels.
Our IT business such as monitors and Gram has achieved solid growth and improvements in many indicators, driven by contactless trends. And we are aiming to accelerate this growth momentum by continuously providing differentiated experiences and value to customers.
And our ID business, including signage and hotel TVs, saw severe negative growth in demand caused by reduced investments on the demand side due to the pandemic. But after the second half of 2021, sales have recovered to pre-COVID levels on the back of resumed investment by key verticals, such as retail, education and enterprises.
We're going to further enhance product competitiveness and provide customized services for each vertical and foster the LED signage business as a new growth engine to capture future business opportunities.
As for the Robotics business, we are working on projects related to robots that can guide, serve and this, in fact, based on the indoor autonomous driving platform. At the same time, we are exploring business opportunities in related areas by accumulating relevant core technologies.
Regarding our renewable energy business, although we are unable to provide details, we are keeping a close eye on additional business opportunities that may arise in the renewable energy business ecosystem. For example, we're also working on providing an optimized solution for efficient energy consumption at home and in commercial spaces.
The BS division will secure competitiveness for future business by providing differentiated customer value and solutions.
Next question, please.
[Interpreted] The next question will be provided by Sung Kyu Kim from Daiwa Capital Markets.
[Interpreted] I have 2 questions. My first question is on HE. What is the shipment volume of OLED TVs for Q4 2021? And did you meet your annual target of 4 million units. And also, what is your target shipment volume of OLED TVs this year? I think I heard yesterday that LGD mentioned a 20% increase. So I'd like to know what your target shipment volume of LED TV this year is?
And my second question is on VS. There are expectations that LGE in collaboration with its affiliates such as LGI and LGD will provide solutions for autonomous vehicles. Are there any ongoing projects related to autonomous driving or any projects you're looking to start.
On the other hand, there are concerns that the commercialization of the autonomous driving market may take longer than expected as the relevant technology is not quite ready yet. What is your outlook for autonomous driving? And could you talk about the opportunities and the risk factors?
[Interpreted] Regarding your first question, in North America and Europe, driven by optimized supply chain and robust LED TV demand, we saw over 60% year-over-year growth, and we have exceeded our target.
And we have exceeded our annual sales target for OLED TVs and the growth doubled year-on-year. And regarding the shipment volume of OLED TVs for 2022, although we're unable to provide specific figures, we will continue the growth momentum by launching improved new models and leveraging our dominant position in the market.
[Interpreted] Let me answer your question on VS. Although we're unable to provide detailed information, there is a project we're working on related to components for autonomous driving for OEMs in Europe and Korea. We also have several ongoing projects with European OEMs.
The autonomous driving business has hurdles to overcome, such as legal regulations, and gaining technological reliability and social consensus. So the general view is that commercialization will take some time.
OEMs and Tier 1 suppliers are looking to quickly secure capabilities and become a first mover in the autonomous driving market by working with companies with capabilities through inorganic strategy. And the SoC companies that were Tier 2 suppliers are also making moves to expand the business, which is intensifying the competition.
As it is expected that Europe and the U.S. will make it mandatory to have every vehicle equipped with autonomous driving solutions. We are making efforts to meet customers' requirements. And the risk factor would be, as mentioned before, intensified price competition as the business expands.
Next question, please.
[Interpreted] The next question will be provided by Nicolas Gaudois from UBS.
Yes. On the EV business within Vehicle Solutions and more specifically, the Magna JV, one of the key parts about is motor and inverters for the EV market. I think your peers have been commenting throughout last year and year-to-date, but we are seeing a fair degree of pricing pressure in these segments. So could you comment on the market outlook for motor and inverters going forward? And how profitability in this segment may actually evolve?
And number two, going back to OLED TV demand and the earlier question we had from SK here. We -- you were reasonably cautious about overall TV demand outlook for 2022. You're not really providing a guidance for OLED TV sales. But how do we see at this stage, the impact of the negative macroeconomic factors we have at hand on OLED TV growth even if incremental competition may be slower to come in than maybe expected earlier.
[Interpreted] Let me answer your first question on VS. Starting from this year, large volume mass production by major OEMs will begin, which will lead to the rapid growth of the EV component market. Therefore, cost competitiveness has become a key factor in winning business.
Based on our technological competitiveness secured by being a first mover in the EV component market and by improving purchase and manufacturing competitiveness through synergies generated from LG Magna JV we have been maintaining our competitive edge.
And regarding the increase in raw material prices, such as copper and magnet, we have signed price contracts with suppliers, so its impact on our profitability will be limited.
As I said previously, we have exceeded our target in Q4 in 2021. And in 2022, in terms of shipment volume, we expect to see solid growth based on our premium products and our competitiveness.
Next question, please.
[Interpreted] The next question will be provided by J.J. Park from JPMorgan.
[Interpreted] I have 2 questions. My first question is on HE. What is your outlook for the TV market demand for 2022? And did you experience any disruptions to your TV production caused by a constrained supply chain and the global semiconductor shortage?
And my second question is on VS. Could you provide outlook for the CAGR of each business unit? What is your target market share? And what's your strategy to achieve the target?
[Interpreted] Let me answer your first question on HE. In the first half last year, we saw strong growth in TV demand, and there was a slowdown in growth in the second half.
But even amid this overall deceleration in growth, the sales of premium products that cost over $1,000, such as OLED TVs have steadily increased.
We expect the overall demand for TV in 2022 to decline slightly year-on-year. But the demand for premium products and in growth markets is forecast to be robust.
And regarding production, since last year, we have been taking preemptive measures such as developing alternative components and multi-sourcing to manage global supply chain. And so we haven't experienced any production disruptions yet.
[Interpreted] Let me answer your question on VS. Looking ahead, market demand in the mid- to long-term is expected to see robust growth at around 7%.
The market demand that has been stagnant over the past few years due to the U.S.-China trade dispute in COVID-19 and the global semiconductor shortage is expected to gradually recover starting from 2022.
In particular, with the surge in demand for green vehicles, we expect the production of green vehicles to represent around 40% of the automotive market after 2025.
And in order to be fully ready for the rebound in the automotive market, we're going to focus our capabilities on smart integrated solutions for infotainment and EV components with integrated solutions, which currently have high-growth potential and next-generation intelligent headlamps. In doing so, we expect to outgrow the market, which will improve our market share.
Next question, please.
[Interpreted] The next question will be provided by Sang Ryul Kwon from DB Investment.
[Interpreted] One question on HE regarding the supply of OLED panels. A domestic player has recently announced that they will be purchasing panels from LGD, and as we know, we only have 1 supplier in Korea who can supply displays OLED panels, and with this limited capacity, if volume increases, panel supply will not be able to meet the demand, and it will result in increased price. So I'm actually skeptical whether the company's entry into the OLED TV market is good news. I believe it will add pressure to the supply market. So what do you think about this?
[Interpreted] Regarding panel supply, as far as we understand, we don't have any major issue.
And regarding cost pressure, we will be offering a wide range of lineup in terms of size from 97-inch to 42-inch, which means we have improved our product mix. So it will improve our profitability, which will offset any negative impact.
Any other questions?
[Interpreted] There are no participants with questions. We will wait for a second until there is another question.
[Interpreted] That brings us to the end of LG Electronics earnings release conference call for the fourth quarter of 2021. For further questions, please contact the IR team. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]