LG Elec shares extend rally on expectations for smartphone biz recovery

2017.05.14 10:22:56 | 2017.05.14 10:24:08

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Shares of South Korean electronics giant LG Electronics Inc. hit its highest level in four years on Friday amid growing expectations for a long-awaited turnaround in the company’s mobile and communication (MC) division that has logged losses since 2015, eating away at the company’s overall profits.

On Friday, shares of LG Electronics listed in Korea’s main bourse Kospi climbed 1.75 percent, or 1,400 won, from the previous trading day to end at 81,200 won, the highest since June 3, 2013 when they ended at 81,300 won.

The stellar performance of its stocks comes after its shares have gained nearly 55 percent since January 2 when they closed at 51,600 won, doubling the growth pace of Samsung Electronics Co. shares. According to data on Korea Exchange, main buyers of its shares were foreign investors who have continued show their voracious appetite for the company since the beginning of this year. Of the total 88 trading days so far this year, offshore investors have net purchased LG Electronics shares for 75 days. On May 8, they net purchased 998,000 shares of LG Electronics, the largest daily purchase since April 10, 2013 when they bought the company’s 1.7 million shares.

Following foreigners’ shopping spree of LG Electronics shares, their holding of the company’s stocks jumped from 22 percent in January to 31 percent recently, marking the first time since September 2011 that foreigners’ ownership of LG Electronics’ shares surpassed 30 percent. Last year, their total holding of LG Electronics stocks hovered between 19 percent and 22 percent.

Foreign investors’ demand for LG Electronics’ shares have revived this year on growing expectations that the company’s MC division would fare significantly better this year than last year thanks to its latest flagship smartphone G6 series that have been well received by consumers around the world since its launch early this year.

In 2016, the division reported over 1 trillion won in losses, but in the first quarter ended March this year, its operating loss narrowed to 200 million won, raising hope that it would swing to profits this year.

According to market research company Strategy Analytics (SA), LG Electronics shipped 7.3 million units of its smartphones to the United States in the first three months of this year, accounting for 20 percent of the U.S. smartphone market. It is the highest share ever reached by LG Electronics in the U.S. smartphone market.

LG Electronics has compensated losses from its MC division with its lucrative home entertainment (HE) and home appliance and air solution (H&A) businesses since 2015, but the company’s new flagship premium smartphone is expected to help it to reduce heavy reliance on HE and H&A divisions this year, market analysts said.

Kim Hyun-soo, an analyst at Taurus Investment & Securities Co., said its smartphone business is reaching its break-even point, while the operating income margin of the company’s HE and H&A businesses has hit a record high of 10.1 percent. Accordingly, LG Electronics is forecast to report an operating income of some 3 trillion won this year, up from 1.3 trillion won last year.

By Hong Jang-won and Kim Hyo-hye

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]