Mobiles to ring in profits for LG

Kim Miyoung

SEOUL: South Korea's top home appliance maker, LG Electronics Inc., is set to post a quarterly profit rise of more than 60 percent, bolstered by profits from its flat screen unit and strong mobile phone exports.

But analysts cautioned the soaring South Korean won may dent profits later this year at the world's biggest manufacturer of air conditioners, which makes 75 percent of sales from overseas.

"Strong sales of digital televisions, mobile phones, and heavy investment gains from its panel-making unit drove LG's quarterly profits," said Michael Min, an analyst at Tongyang Investment Bank. "But weak domestic consumption will continue to pressure the bottom line."

LG, which competes with South Korean's Samsung Electronics Co Ltd in producing mobile phones, televisions and refrigerators, is expected to post a third-quarter net profit of around 190 billion won ($162 million) when it reports results on Thursday, according to seven analysts polled by Reuters.

This is up 64 percent from a profit of 116.1 billion won a year ago. Sales are expected to reach 4.77 trillion won in the quarter from 4.4 trillion won a year before.

The biggest profit contributor is likely to be its 50-percent stake in LG.Philips LCD, LG's joint venture with Dutch group Philips, as demand for flat screen televisions and computer monitors expanded.

Prices for the most common type of liquid crystal displays (LCD) panels firmed up this year, averaging $190-200 for 15-inch monitors and $260-270 for 17-inch ones and analysts expect income contribution from LG.Philips LCD to top 180 billion won.

WON, WEAK LOCAL CONSUMPTION WORRIES

Despite upbeat forecasts for the flat panel industry, LG is faced with a soaring currency and sluggish domestic consumer spending in the fourth quarter.

The won gained some five percent from a March low and some analysts expect the currency to rise another seven percent to 1,100 won by year-end. Fearing further appreciation may trim repatriated revenues, LG said it had converted sizable dollar deposits into the won as part of its hedging strategy.

Battling slumping domestic consumer spending, hit by a recession-hit economy, LG is banking on up-scale consumer products. Innovative and pricey products such as "Tromm" washing machines, "Dios" refrigerators and "Whisen" airconditioners are making up for less expensive models.

Shares in LG have climbed 56 percent so far this year, outperforming a 23 percent rise in the broader market.

LG shares, the country's seventh-largest stock with a market value of $7.9 billion, hit record highs in September and trade at a forward price/earnings multiple of 12.6, far below Philips's 59.4 and Sony Corp's, according to Reuters Research.

PHONES BACK IN SPOTLIGHT

Analysts see LG strongly recovering from a slump in cell phone sales in the second quarter, boosted by shipments to India and the United States, although average selling prices are falling, on growing competition and sales of lower-end phones.

"Average selling prices will be lower than that of the second quarter largely due to shipments to India's Reliance," said JJ Park, a JP Morgan analyst.

India is a big growth market for global telecoms companies as only two percent own a mobile phone from a population of more than one billion.

LG, a latecomer to an overcrowded, saturated mobile phone market, also competes with global handset giants Motorola Inc, Nokia, and a joint venture between Sony Corp and Ericsson.

Analysts expect the world's sixth-largest mobile phone maker to easily top its 2003 cell phone sales target of 23 million units, up 44 percent from a year earlier, as growth is seen further firming in the fourth quarter - traditionally the industry's strongest season.

Reuters

($1=1170.4 won)