LG Electronics (066570 KS) Emerging As the No
LG Electronics (066570 KS) Emerging as the no. 3 global smartphone player Technology 1Q13 review: OP of W349.5bn; Smartphone recovery in full swing LG Electronics (LGE) reported preliminary 1Q revenue of W14.1tr and an operating Result Comment profit of W349.5bn (excluding LG Innotek earnings: W12.9tr and W333bn, respectively; April 25, 2013 LG Innotek’s earnings are consolidated into LGE’s beginning 1Q). 1Q results beat our expectations (revenue of W12.24tr and operating profit of W251.4bn), boosted by robust smartphone sales. (Maintain) Buy LGE sold 10.3mn smartphones in 1Q, breaking the 10mn mark for the first time in any quarter. This was largely driven by: 1) the wider geographic availability of the Optimus G, Target Price (12M, W) 114,000 2) strong sales of the Nexus 4, and 3) the release of the Optimus G Pro (follow-up to the Optimus G). As a result, the mobile communications (MC) unit delivered a solid OP Share Price (04/24/13, W) 90,000 margin of 4.1% (vs. our estimate of 2%), the highest level after 3Q09 (8.8%). Expected Return 27% On the other hand, the home entertainment (HE) division still has not made any visible margin improvement. After peaking at 5.7% in 2Q12, the division’s OP margin plunged to 0.8% in 3Q12 and 0.3% in 4Q12 due to increased marketing spend (in order to gain OP (13F, Wbn) 1,741 market share amid sagging TV demand). In 1Q13, OP margin slightly edged up to 0.6%, Consensus OP (13F, Wbn) 1,465 but is still down 2.4%p YoY.
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