LG Household & Health Care (051900) Company Update Summary
Core Content
This document presents an analyst update on LG Household & Health Care (LGH&H), highlighting the company's financial performance, key changes in estimates, and valuation metrics. The report is dated 2017.10.13 and is authored by Eunkyung Park from Samsung Securities.
Key Points
Current Market Overview
- Current Price: KRW975,000
- Target Price: KRW1,210,000 (24.1% upside)
- Market Cap: KRW15.2t/USD13.4b
- Shares (float): 15,618,197 (59.8%)
- 52-week High/Low: KRW1,007,000/KRW741,000
- Avg Daily Trading Value (60-day): KRW27.8b/USD24.5m
One-Year Performance
- LGH&H Performance:
- 1M: 8.2%
- 6M: 25.6%
- 12M: 6.9%
- Vs Kospi:
- 1M: 3.4%
- 6M: 8.1%
- 12M: -12.1%
Key Changes
- Recommendation: No change (still BUY)
- Target Price: No change (KRW1,210,000)
- 2017E EPS: KRW38,732 (down 0.4% from previous estimate)
- 2018E EPS: KRW45,385 (down 0.3% from previous estimate)
SAMSUNG vs THE STREET
- No of Estimates: 22
- Target Price: KRW1,104,682
- Recommendation: 3.7
- BUY: 5
- BUY★★★: 1
- HOLD: 3
- SELL: 2
- SELL★★★: 1
Performance Preview for 3Q17
| Metric |
Estimate (KRWb) |
Change (% y-y) |
Change (% q-q) |
Consensus (KRWb) |
Diff (%) |
| Sales |
1,552.2 |
(0.7) |
1.4 |
1,576.9 |
(1.6) |
| Operating Profit |
247.9 |
1.5 |
6.6 |
243.5 |
1.8 |
| Pre-tax Profit |
239.4 |
3.0 |
8.7 |
234.1 |
2.3 |
| Net Profit |
175.0 |
(8.9) |
4.0 |
181.0 |
(3.3) |
Business Segments Analysis
Cosmetics
- Sales: KRW714.7b (down 4% y-y)
- Operating Profit: KRW132.2b (up 2% y-y)
- Margin: 18.5% (up 0.8% pts y-y)
- Performance: Margins improved due to restructuring and high-end product growth, despite lower sales in low-end brands.
Household Goods
- Sales: KRW447.3b (up 2% y-y)
- Operating Profit: KRW68.9b (up 2% y-y)
- Margin: 15.4% (flat y-y)
- Performance: Market share increased despite industry-wide scandals, as LGH&H's products were not involved.
Beverages
- Sales: KRW390.3b (up 2% y-y)
- Operating Profit: KRW46.8b (up 4% y-y)
- Margin: 12% (up 0.2% pts y-y)
- Performance: Cost-cutting from a new raw material factory helped reduce COGS, but higher marketing costs limited margin growth. Marketing will be concentrated in 2H17 ahead of the Pyeongchang Winter Olympics.
Forecast and Valuation
Quarterly Results and Forecasts
| Metric |
1Q16 |
2Q16 |
3Q16 |
4Q16 |
1Q17 |
2Q17 |
3Q17E |
4Q17E |
2016 |
2017E |
2018E |
2019E |
| Sales |
1,519 |
1,554 |
1,563 |
1,457 |
1,601 |
1,530 |
1,552 |
1,482 |
6,094 |
6,165 |
7,029 |
7,626 |
| Operating Profit |
233.5 |
225.4 |
244.2 |
177.9 |
260.0 |
232.5 |
247.9 |
190.9 |
881 |
931 |
1,082 |
1,186 |
Valuation Summary
| Year |
Sales (KRWb) |
Operating Profit (KRWb) |
Pre-tax Profit (KRWb) |
Net Profit (KRWb) |
EPS (KRW) |
P/E (x) |
P/B (x) |
ROE (%) |
EV/EBITDA (x) |
Net Debt (KRWb) |
| 2014 |
4,677 |
511 |
480 |
355 |
20,570 |
47.4 |
45.1 |
22.3 |
26.8 |
852 |
| 2015 |
5,328 |
684 |
645 |
470 |
27,463 |
35.5 |
22.4 |
24.6 |
20.6 |
633 |
| 2016 |
6,094 |
881 |
753 |
579 |
34,208 |
28.5 |
13.8 |
24.5 |
16.3 |
429 |
| 2017E |
6,165 |
931 |
887 |
657 |
38,732 |
25.2 |
9.5 |
22.8 |
15.2 |
247 |
| 2018E |
7,029 |
1,082 |
1,041 |
770 |
45,385 |
21.5 |
7.0 |
22.2 |
13.1 |
55 |
| 2019E |
7,626 |
1,186 |
1,149 |
850 |
50,076 |
19.5 |
5.4 |
20.6 |
11.5 |
(490) |
Global Cosmetics Peers Valuation Comparison
| Company |
Rating |
Target Price (KRW) |
P/E (x) |
P/B (x) |
ROE (%) |
EV/EBITDA (x) |
Net Debt (KRWb) |
| LGH&H |
BUY |
1,210,000 |
25.2 |
9.5 |
22.8 |
15.2 |
247 |
| Amore Pacific |
HOLD |
250,000 |
41.7 |
4.0 |
14.4 |
16.8 |
75,500 |
| Amore Pacific Group |
HOLD |
130,000 |
50.6 |
3.8 |
15.4 |
12.5 |
429 |
| Cosmax |
HOLD |
20,000 |
23.6 |
1.8 |
9.0 |
11.9 |
3,159 |
| Korea Kolmar |
BUY |
123,000 |
22.7 |
3.6 |
13.7 |
13.2 |
1,468 |
| Shiseido |
Not Rated |
- |
32.6 |
23.8 |
24.8 |
13.4 |
23,224 |
| Kao |
Not Rated |
- |
29.9 |
23.8 |
27.0 |
13.1 |
27,619 |
| KOS? |
Not Rated |
- |
33.6 |
27.9 |
17.5 |
13.4 |
33,224 |
| Pola |
Not Rated |
- |
27.7 |
27.7 |
24.0 |
13.4 |
233,224 |
Conclusion
- The analyst maintains a BUY recommendation for LGH&H, citing improved profitability and market share gains in key segments.
- The company's stock is considered one of the most attractively valued cosmetics stocks globally.
- Despite challenges such as China risk and a scandal, the performance in the cosmetics and household goods divisions has offset these negatives.
- The target price of KRW1,210,000 remains unchanged, with the stock trading at 21.5x 2018 P/E, offering 24% upside potential.
- The analyst believes it is an optimal time to add exposure to LGH&H before the China risk subsides.
