[Click eStock] "LG Innotek, Possible Earnings Recovery Based on Suppressed Demand Since Q2"

[Asia Economy Reporter Eunmo Koo] DB Financial Investment expects that LG Innotek's first-quarter performance this year will fall short of expectations due to the impact of the novel coronavirus disease (COVID-19), but from the second quarter onward, performance recovery is possible based on pent-up demand.

Due to the COVID-19 situation, LG Innotek's first-quarter performance this year is expected to fall short of initial estimates. On the 6th, DB Financial Investment researcher Seongryul Kwon stated in a report, “Production disruptions at the Chinese factories of overseas strategic customers inevitably had a negative impact on orders within the related supply chain,” adding, “Accordingly, LG Innotek's first-quarter sales are revised down from the initial 1.8055 trillion KRW to 1.5138 trillion KRW, and operating profit from 52.4 billion KRW to 45 billion KRW.” He explained, “The reason the decline in operating profit is smaller than the decline in sales is due to the positive effect of the rising exchange rate,” and also predicted, “With forecasts that the Chinese factories will return to normal operation by the end of this month, second-quarter performance could be better than expected.”

It is assessed that performance recovery will be possible from the second quarter onward due to pent-up demand. Researcher Kwon said, “Orders for products that experienced production disruptions may be concentrated in the second quarter, and the exchange rate is trading higher than initially expected, so the second-quarter operating profit is revised upward from 60 billion KRW to 70.2 billion KRW.” The annual operating profit estimate for this year remains unchanged.

He added, “Sales of camera modules for new low-priced models of overseas strategic customers will be fully reflected in the second quarter, and in the second half of the year, replacement demand due to the launch of 5G models is expected to increase significantly,” forecasting, “LG Innotek's performance growth momentum from camera modules, 3D sensing modules, and ToF (Time of Flight) modules will be substantial.” Optical solution sales are expected to increase by about 1 trillion KRW this year.

Overall, the company’s strength has improved. Researcher Kwon explained, “In the past, a decrease in orders from overseas strategic customers immediately led to losses and a sharp decline in performance, but now the components of optical solutions have diversified, and the substrate materials division's monopolistic high-profit structure has become more solid,” adding, “Furthermore, by proactively restructuring unprofitable businesses, the company’s financial health has greatly improved.”

This content was produced with the assistance of AI translation services.