LG Elec Q3 net jumps on LCD venture, handsets

Appliance and handset maker LG Electronics Inc posted a better-than-expected 15-fold rise in quarterly profit on Tuesday, boosted by rising demand for displays and mobile phones.

The outlook for the company remains bright, boosted by solid handset sales and a better-than-expected recovery at LG.Philips LCD Co Ltd, the joint venture with Dutch company Philips, in which it owns a 38-percent stake.

LG Electronics' shares erased earlier gains to close 3.3 percent lower at 87,900 won, after investors baulked at the parent-basis operating profit, which came in at half the level expected.

Other South Korean technology stocks fell, with Samsung Electronics, Hynix Semiconductor and LG Philips shedding around 4.5 percent each, as a profit warning from Swedish technology bellwether Ericsson hurt sentiment in the sector.

Analysts maintained their bullish stance on the company.

I think LG shares reacted to the parent-basis operating profit, but its consolidated operating profit, which combines earnings from overseas units, nearly doubled, said Kim Woon-ho, analyst at Prudential Investment & Securities.

LG is moving more and more production away from home so the size of parent-basis profit cannot but keep declining, he added.

LG customarily reports earnings on a parent company basis and a consolidated basis. The latter set of numbers includes LG's overseas subsidiaries.

LG, which competes with home rival Samsung Electronics in handsets, screens and appliances, reported a net profit of 339 billion won ($369.4 million) in the quarter ended Sept. 30, from 22.7 billion won profit a year earlier.

The figure was comfortably above a consensus forecast of 280 billion won by 10 analysts polled by Reuters.

But operating profit on a parent basis was 92.4 billion won, much less than the 178 billion won anticipated by a Reuters Knowledge survey of 19 analysts.

NARROWING LOSSES

Makers of plasma screens are fighting for mere survival after more efficient and prolific liquid crystal display (LCD) makers overran the flat-screen market last year.

LG's display division, which posted a steep 24.2 percent loss margin on a parent basis in the second quarter due to the disastrous plasma market, reported a loss margin of only 11.5 percent this time, helped by rising demand for flat-screen TVs in the run up to the gift-giving season.

Although still in the red, LG's plasma screen business is also expected to continue its recovery on the back of stronger demand, especially for 32-inch flat TVs, a format popular in developing markets such as China.

Chief Investment Officer James Jeong told a results investor conference the plasma business aimed to post a profit on an EBITDA (earnings before interest, tax, depreciation and amortisation) basis early in the fourth quarter.

The company said it sees plasma panel prices falling 10 percent or less in the fourth quarter.

The overall figure is pretty good since the display area showed a smaller deficit than expected, said John Park, an analyst at Daishin Securities, who predicted robust earnings for the fourth quarter and next year.

Worries that the U.S. credit crunch may affect sales are highly likely to be unfounded as display panel prices have weakened to a level appealing to U.S. consumers.

LG, the world's fifth-biggest mobile phone maker after Nokia, Samsung, Motorola Inc. and Sony Ericsson, sold 21.9 million phones in the third quarter, better than the 19.1 million sold in the second.

The mobile phone division posted a profit margin of 8 percent on a parent basis, down from 11.3 percent in April-June but much higher than 3.7 percent in the year-ago period.

Shares in LG, valued at around $15 billion, rose 11.9 percent in the third quarter, in line with the wider market's 11.6 percent rise.