[Click eStock] "LG Innotek, Maximizing the Effect of Q4 Earnings Improvement"

IBK Investment & Securities Report
Operating Profit Up 30% Year-on-Year This Year

[Asia Economy Reporter Minji Lee] IBK Investment & Securities maintained its buy rating on LG Innotek on the 2nd and raised the target price by 2.5% from the previous level to 200,000 KRW.

LG Innotek's third-quarter sales are expected to reach 1.9412 trillion KRW, a 26.1% increase compared to the second quarter. The Optical Solutions division is projected to record 1.2169 trillion KRW, a 30% increase from the second quarter, but due to changes in the timing of new product launches by overseas clients, the performance is expected to be weaker than anticipated. The Automotive Components division is expected to increase by 32% quarter-on-quarter due to the normalization of automobile production.

Operating profit is expected to be 80.7 billion KRW, with profitability improving across all divisions compared to the second quarter. The Optical Solutions segment is expected to more than double, but profitability is also expected to be volatile due to fluctuating volumes from overseas clients. The operating loss in the Other Businesses division is expected to remain at a similar level to the second quarter. Although the profitability of general components is improving, the LED deficit is expected to worsen compared to the second quarter.

With delays in new product launches, the effect of performance improvement is expected to be maximized in the fourth quarter rather than the third quarter. The first-quarter performance next year is also expected to show a different pattern from last year. Kim Unho, a researcher at IBK Investment & Securities, said, “As demand for 5G improves, the performance improvement trend of the substrate materials division will continue.”

Operating profit this year is expected to increase by more than 30% compared to last year. The performance momentum from new product launches by overseas clients in the second half remains valid, and the impact of recent issues related to product supply methods and new participants on performance is expected to apply from 2021 onward. Researcher Kim Unho explained, “The third-quarter performance improvement momentum is weaker than last year but will be shifted to the fourth quarter, so there is only seasonal volatility,” adding, “There is no basis to conclude that the current situation is negative for the company, so the target price is being raised.”

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