LG Electronics’ stock slides for a second day

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LG Electronics’ stock slides for a second day

LG Electronics saw its shares plunge 6.2 percent yesterday as the stock continued its downward run despite the company announcing on Wednesday that it had dramatically swung into net profit in the first-quarter.

The shares closed at 72,900 won ($64) in the wake of a 1.3 percent drop the previous day.

The two-day slide lends further credence to bleak market assessments of what lies in store for the world’s No. 2 TV producer after Samsung Electronics when it posts its results for the second quarter that ends on June 31.

LG posted net income of 242.5 billion won in the first quarter, a turnaround from its 15.8 billion won loss one year earlier. It also recorded operating profit of 448.2 billion won, up 242.5 percent from 130.8 billion won at the start of 2011.

The results, which beat the market consensus, are largely down to the company’s air-conditioning and energy solution systems as well as its high-end TVs featuring 3-D screens.

Choi Nam-gon, an analyst with TongYang Securities, said that although LG put in a robust performance in the first three months of this year, flagging sales remained a concern. Sales fell 7.1 percent to 12.2 trillion won.

“The margins are likely to dive again in the second quarter,” he said.

The securities firm lowered its six-month target for LG to 107,000 won from 120,000 won yesterday.

Some analysts hold LG’s volatile smartphone sales responsible for its falling share price.

“It is hard to expect LG to post persistent growth unless its handset business shows it is improving,” said Lee Sun-hak, an analyst with Mirae Asset Securities. LG’s handset sales in the first quarter declined 14 percent on-year.

Lim Do-ri, an analyst with Solomon Investment & Securities, also warned in a report about the risk of relying on smartphones and TVs.

“Some market watchers predict LG will soon be challenged by Japanese rivals, which are facing many challenges now but are bracing to launch counterattacks in the TV business,” he said.

“Chinese makers such as ZTE and Huawei may also prove stiff competition in the smartphone business.”

Solomon’s target for LG is 120,000 won, unchanged following the first-quarter results.

Kim Hye-yong, an analyst with Woori Investment & Securities, raised the target price of LG by 14 percent to 125,000 won. This was based on forecasts that demand for its TVs and air conditioners will rise as summer approaches, and strong smartphone sales.

By Seo Ji-eun [spring@joongang.co.kr]

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