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Announcement:

Moody's: LG Electronics' improved performance in 1Q 2017 is credit positive; issuer rating unaffected

02 May 2017

Hong Kong, May 02, 2017 -- Moody's Investors Service says that LG Electronics Inc.'s (LGE) results for the first quarter ended 31 March 2017 (1Q 2017) were credit positive, but will not immediately affect the company's Baa3 issuer rating or the negative rating outlook.

LGE reported an operating income of KRW921.5 billion in 1Q 2017, a notable improvement when compared to the operating loss of KRW35.2 billion in the quarter before that (4Q 2016), and the operating income of KRW505 billion for 1Q 2016. As a result, its operating margin grew to 6.3% for 1Q 2017 from 3.8% in 1Q 2016.

"LGE's robust performance in 1Q 2017 was mainly driven by the stronger performance in its Home Appliance and Air Solutions and Home Entertainment divisions, as well as the lower quantum of loss in its Mobile Communications division, following the business restructuring and cost cutting measures implemented in 2H 2016," says Gloria Tsuen, a Moody's Vice President and Senior Analyst.

Operating income at the Home Appliance and Air Solutions and Home Entertainment divisions was up 28% to KRW521 billion and up 14% to KRW382 billion respectively year-on-year, driven by the growth of premium products and the improvement in the company's cost structure. These factors more than offset the price increase in raw materials and display panels.

The Mobile Communications division narrowed its operating loss to KRW200 million in 1Q 2017 from KRW467 billion in 4Q 2016.

LG Display Co., Ltd. (unrated), LGE's 37.9%-owned subsidiary, also reported strong operating income of KRW1.03 trillion in 1Q 2017, a 14% increase quarter-on-quarter, driven by the increase in large-size panel prices, and a shift in product mix towards high value-added products.

"We expect LGE's operating margin to soften during the rest of 2017 from the high level in 1Q 2017, in part due to seasonality, but to remain stronger than the 2.4% in 2016," adds Tsuen.

If LGE can demonstrate its ability to report an adequate level of profit margins on a sustained basis, this development would support its Baa3 rating. The company still faces significant challenges of intense competition in all of its divisions and containing the losses in its Mobile Communications division.

On the other hand, Moody's expects LG Display's earnings to improve significantly in 2017, given the improving trend in the supply-demand balance for display panels, which should result in lower financial leverage, although this benefit will likely be offset to some extent by its large capital expenditures.

The principal methodology used in this rating was Consumer Durables Industry published in April 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LG Electronics Inc. is a leading consumer electronics company that makes diversified products, including refrigerators, washing machines, air conditioners, TVs, mobile phones, and vehicle components.

LG Display Co., Ltd. is a leading manufacturer of thin-film transistor liquid crystal display panels, and OLEDs.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Gloria Tsuen, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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