[Click eStock] LG Innotek, Record High Q4 Operating Profit... Excessive Undervaluation

[Asia Economy Reporter Lee Seon-ae] Kiwoom Securities evaluated that LG Innotek's fourth-quarter operating profit is expected to reach an all-time high, but its stock price is currently excessively undervalued.

Kim Ji-san, a researcher at Kiwoom Securities, said, "The fourth quarter, when the effect of the new iPhone is fully reflected, will see a significant improvement in operating profit to 433.8 billion KRW (QoQ 27%, YoY 27%), which also seems to have a large gap from the market consensus (338.2 billion KRW)." He analyzed, "The dominant supply situation of optical solutions will continue, and the expansion of achievements in the ADAS and autonomous driving camera fields through collaboration with LG Electronics is also positive."

In the first half of next year, the iPhone SE 5G model will be released, which will greatly help the off-season optical solution utilization rate, and demand for ToF modules for XR devices targeting the metaverse is expected to increase. If semiconductor substrates enter the FC-BGA market, where structural boom is expected to continue long-term, it is likely to have a positive impact on corporate value. Automotive components are expected to turn profitable next year, overcoming the slump caused by disruptions in finished car production, and their contribution to profits will begin in earnest.

Researcher Kim emphasized, "Contrary to the upward trend in earnings estimates, the stock price has undergone a correction, causing this year's price-earnings ratio (PER) to fall to 4.8 times and enterprise value/EBITDA (EV/EBITDA) to 2.8 times, which is judged to be excessively undervalued."

Meanwhile, the third-quarter operating profit estimate was revised upward again to 341.1 billion KRW (QoQ 124%, YoY 215%), expected to significantly exceed the market consensus (299 billion KRW). Although there are concerns about production disruptions of the new iPhone due to parts supply shortages, on the contrary, production disruptions of optical solution competitors are prolonging, increasing LG Innotek's position and further boosting order volume. The client's intention to secure safety stock is inevitably strong. In particular, the supply share of high value-added sensor-shift cameras and ToF modules is expected to rise. Favorable exchange rate conditions are also expected to help profitability.

Researcher Kim predicted, "The market response to the iPhone 13 series is also positive and will lead 5G replacement demand," adding, "The substrate business, including semiconductor substrates and Tape Substrate, will continue its favorable trend."

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