Between FY2021 and FY2025, LG Electronics Inc. (KRX:066570) reported ₩17,159.3bn of operating income.
Over the same five years it reported ₩6,240.5bn of net income.
Thirty-six percent of what the operating businesses earned survived to the bottom of the income statement. In the worst year, FY2024, it was 17.3%: ₩3,419.7bn of operating income became ₩591.4bn of net income.
For a company currently posting the best operating margins in its recorded history, that conversion rate is the thing that determines whether any of it matters to a shareholder.
The leakage is not spread evenly. It concentrates in a single quarter, and it does so with a regularity that is hard to call coincidental.
Fourth quarter of 2024: operating income of ₩135.3bn. Pretax income of negative ₩1,095.4bn. Net income of negative ₩713.8bn, after a ₩391.1bn tax credit.
Fourth quarter of 2025: operating income of negative ₩109.0bn. Pretax income of negative ₩610.6bn. Net income of negative ₩725.9bn.
Both years, the third quarter had been comfortably profitable, at ₩751.9bn and ₩688.9bn of operating income respectively. Both years, revenue in the fourth quarter was the highest of the year. The company was not selling less. It was recognising something.
Split the fourth quarter's problem and there are two components.
The first is gross margin. In the fourth quarter of 2025 it was 20.25%, on gross profit of ₩4,830.2bn against ₩23,852.2bn of revenue. The next worst of the eight quarters on file is 23.96%. The best, the second quarter of 2026, is 27.72%. So Q4 runs roughly four points below the rest of the year on the gross line, which for a company this size is well over ₩800bn of profit.
Part of that is the television business, which sells its heaviest volumes into year-end promotions at the thinnest margins of the year. Part is inventory provisioning that lands with the annual close.
The second component is bigger and sits below the operating line. In the fourth quarter of 2024, operating income of ₩135.3bn plus net finance income of ₩61.6bn should have produced pretax income near ₩196.9bn. The reported figure was negative ₩1,095.4bn. Something close to ₩1.29tn appeared as a loss from items that are neither operating nor financial.
The same calculation for the fourth quarter of 2025 gives a gap of roughly ₩426bn.
Those are impairments, equity-accounted losses, and restructuring provisions, taken at the annual close as accounting standards and auditors require. The notes to the annual report itemise them and the summary financials do not.
There is a structural reason those charges keep appearing.
LG Electronics consolidates LG Display, the panel manufacturer, without owning all of it. LG Display has been through a prolonged difficult period as Chinese panel makers took share in LCD and pushed prices down, and its results flow into these accounts line by line, including its impairments.
That has two effects on how a shareholder should read the numbers. The consolidated operating income and net income both include LG Display's contribution, which has often been negative. And the portion of consolidated net income that belongs to LG Display's own minority shareholders is not available to LG Electronics holders at all.
The summary financials do not split net income between controlling and non-controlling interests, and the half-year report does. Anyone computing earnings per share for this company from the consolidated net income line will overstate it, and the overstatement varies with how LG Display is doing.
The first half of this year has been exceptional. Operating income of ₩3,252.8bn already exceeds all of FY2025's ₩2,478.4bn, on a 6.84% margin that is higher than any full year in eleven.
Conversion has been better too. First-half net income of ₩1,786.4bn against ₩3,252.8bn of operating income is 54.9%, well above the five-year average of 36.4%, though still leaving nearly half behind. Roughly ₩290bn a quarter continues to disappear between the operating and pretax lines, and the effective tax rate of 32.3% is above the Korean statutory rate.
Whether the year converts depends on December. If the fourth quarter behaves like the last two, a large charge takes a substantial bite out of what the first three quarters earned. If the panel business has stabilised and there is nothing left to write down, FY2026 could be the first year in which the conversion rate looks like a normal manufacturer's.
This is not academic, because the valuation swings on it.
At the August 27 close of ₩198,300 across 162,884,638 common shares, the market capitalisation is ₩32.30tn. Note the company also has 17,181,299 preferred shares outstanding that are not in that figure.
On FY2025 net income of ₩1,220.4bn, the shares are on 26.5 times earnings. On FY2025 operating income of ₩2,478.4bn, 13.0 times. On annualised first-half 2026 net income of ₩3.57tn, 9.0 times.
Three defensible numbers spanning a factor of three, and the difference between them is entirely about how much of the operating profit reaches shareholders. Against total equity of ₩31.92tn, which includes non-controlling interests, the price-to-book is 1.01 times.
The fourth quarter, reported in January, and specifically the gap between operating income and pretax income. That single number tells you whether the impairment cycle at the consolidated subsidiaries has run its course.
The second thing, available sooner, is the split of net income between controlling and non-controlling interests in the third-quarter report. If the controlling share is rising as a proportion, LG Display is contributing rather than consuming, and the conversion problem is fixing itself. If the split is widening, the operating margin story visible in the first half belongs partly to somebody else.
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