Stock picks: buy S&T Daewoo, sell LG Electronics

Buy: Fila Korea

Fila Korea’s domestic sales are believed to have grown around 11 percent in the second quarter of the year compared to a year ago, Woori Investment Securities said. Samsung Securities also recommended the sportswear company.

Korea accounts for two thirds of the firm’s revenue, yet it is also expanding in other countries. Most recently, the firm acquired the Titleist golf brand of the United States for $1.23 billion. Mirae Asset Private Equity Fund helped the financing of the deal.

Woori says that the American golf brand will be Fila’s stepping stone to be a global player in the sports apparel and equipment sector. Fila was established in Italy in 1911. Fila Korea, which was a separate company with a brand license, acquired Fila from U.S. hedge fund Cerberus Capital in 2003.

Woori said that Fila is implementing a restructuring program and its U.S. operation is turning around to the black this year. In 2010, its worldwide operating profit was 53.4 billion won ($49 million).

Buy: S&T Daewoo

It is a “golden chance” to buy S&T Daewoo, a car part maker, said Korea Investment & Securities. Its 12-month target price is 45,000 won, based on the rice-earnings ratio of 12. Friday’s closing price was 28,850 won.

The report expected that sales and the operating profit of S&T Daewoo will grow by 17.3 percent and 30.5 percent this year, respectively. The main factor of the growth is growing car sales of its major customers, GM, Hyundai and Kia.

There will also be a one-time cash inflow from the sale of its shareholding in Korea Delphi Automotive Systems. The report expects the deal to take place in July, and it will bring 28.8 billion won to S&T Daewoo.

The firm was established in 1981 as Daewoo Precision Industries, a part of the now-defunct Daewoo Group. Apart from its motor parts, the firm is well-known in Korea as the producer of K-series firearms. The K2 is the standard rifle of the Korean Armed Forces.

Sell: LG Electronics

It’s been a bad week for the world’s second largest TV maker (after Samsung Electronics), as its stock price has dropped to the lowest level in more than two years. Hanwha Securities belatedly downgraded the firm on Friday to “market perform,” which is another word for “sell” in the Korean stock market.

Hanwha said LG’s second-quarter profit will be lower than the first quarter, and it is not likely to recover at least until the winter. Home appliance and mobile phone divisions are facing increased competition in the global market from Chinese manufacturers. Air conditioners are selling well but planned large capital investment means there will be little or no profit from this business for some time, the report said.

Hanwha’s target price is 91,000 won, compared to Friday’s closing price of 79,900 won. But this is a huge drop from its previous target of 140,000 won. LG may find consolation from the fact that its archrival Samsung has also lost about 20 percent from its peak price this year.

Compiled by Cho Jin-seo