July 16, 2008 / 9:58 AM / 10 years ago

PREVIEW-LG Elec set for strong Q2 profit, risks ahead

* What: Q2 results

* When: Monday, July 21

* Profit lifted by handsets, weak won, slowdown looms

By Marie-France Han

SEOUL, July 16 (Reuters) - LG Electronics Inc (066570.KS) is set to report quarterly earnings more than doubled next Monday thanks to high margins at its mobile phone unit, brisk sales of TVs and solid results at its LCD joint venture.

While the outlook for the rest of year is clouded by the deepening global economic slowdown, the South Korean company is still expected to have an outstanding year on the back of a resilient mobile phone division, boosted by a weaker won KRW= currency, which makes LG’s exports more competitive.

LG’s 2008 net profit on a parent basis is forecast to more than double to 2.53 trillion won from the previous year, according to 25 analysts polled by Reuters Estimates.

“LG won’t be immune to the headwinds of the global slowdown, but should be able to outperform the competition,” said Peter Yu, an analyst at BNP Paribas.

LG’s strength in Europe, which is comparatively less affected by the stalling economy than the United States, makes it more capable of overcoming the hurdles ahead, analysts say.

“The U.S. economy is definitely a concern, but the impact of the downturn on LG could be smaller than expected,” said Kim Woon-ho, an analyst at Prudential Investment & Securities.

LG, which owns 38 percent of LG Display Co Ltd (034220.KS), should have benefited from another outstanding quarter at the world’s second-biggest LCD maker, which last week posted a quarterly net profit that more than trebled from a year ago.

LG is seen posting January-March net profit of 802 billion won ($), more than double the 385 billion won posted in the year-ago period, according to ten analysts surveyed by Reuters.

Quarterly revenue on a global basis is seen at 12.7 trillion won, according to the Reuters poll, up 22 percent from last year’s 10.4 trillion. Operating profit on a global basis should climb more than 80 percent to 848 billion won, from 464 billion won a year ago.


LG, the world’s fourth largest mobile phone maker after Nokia NOK1V.HE, Samsung Electronics (005930.KS), Motorola MOT.N and ahead of Sony Ericsson (6758.T) (ERICb.ST), is expected to remain relatively unharmed by the sweeping popularity of Apple’s (AAPL.O) iPhone.

“The iPhone should have a deeper impact on Motorola and Sony-Ericsson,” said Steve Lee, an analyst at Goodmorning Shinhan Securities, adding that LG should also benefit from Verizon’s (VZ.N) aggressive marketing efforts to counter Apple.

LG is expected to have sold 27 to 28 million phones in the second quarter, a strong improvement from 24.4 million units in January-March.

Second-quarter operating profit margin in handsets is seen at around 14 percent, steady from 13.9 percent, but that will likely represent a peak for the year. CJ investment predicts the margin will fall back to 11.5 percent in the third quarter.

LG’s own display division, which makes plasma panels, is likely to continue to struggle, pressured by a growing price war in flat screens led by industry leaders such as Sony Corp (6758.T) and Samsung.

Meanwhile, a looming panel oversupply situation in the second half is set to hurt LG Display, which in turn will impact LG Electronics’ bottom line in the quarters ahead. BNP estimates that LG’s net profit in 2009 will decline by more than 20 percent because of lowered earnings contribution from LG Display.

LG is also set to suffer from smaller earnings at its appliances division, which is typically less profitable in the second half.

Shares in LG, which has a market value of about $15.5 billion, fell 6.7 percent in the second quarter, against the wider market’s .KS11 1.7 percent fall, on growing concerns over the economy. (Additional reporting by Rhee So-eui and Park Ju-min, editing by Keiron Henderson and Louise Heavens)

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