[Click e Stocks] "LG Innotek, Undervalued Despite Forecasted Record Performance This Year"

[Asia Economy Reporter Song Hwajeong] Daishin Securities maintained its 'Buy' rating and a target price of 300,000 KRW for LG Innotek on the 21st, expecting the company to record its highest-ever performance this year, while viewing the stock as undervalued.

Since the 10th of last month, LG Innotek's stock price has fallen approximately 15.6%, while its Q3 and full-year earnings forecasts have been revised upward, deepening the valuation undervaluation. The spread of COVID-19 in Vietnam, power shortages in China, and initial production disruptions of the iPhone 13 due to some semiconductor supply issues have led to concerns over a 10 million unit reduction in iPhone 13 production and a slowdown in earnings. Daishin Securities analyst Park Kangho stated, "The 10 million unit reduction in iPhone production can be interpreted as a carryover," adding, "Q3 and Q4 of this year and next year's earnings are expected to exceed market consensus, so the impact of iPhone 13 production disruptions on earnings improvement is limited."

LG Innotek is expected to achieve its highest-ever annual performance this year. Analyst Park explained, "LG Innotek's operating profit is expected to significantly exceed consensus estimates (3Q 308.6 billion KRW, 4Q 346.8 billion KRW) with 340.4 billion KRW in Q3 and 396.7 billion KRW in Q4," and added, "The annual operating profit is expected to reach a historic high of 1.23 trillion KRW this year." The strong sales of iPhone 12, the rise in the average supply price of iPhone 13, and the effect of the KRW-USD exchange rate increase are expected to push total sales and operating profit margin beyond consensus. Optical solution sales and operating profit in the second half of this year are estimated to have increased by 31.4% and 74.7%, respectively, compared to the same period last year.

Semiconductor substrates have grown as a new revenue source, exceeding estimates due to sales growth and mix effects. Amid global supply shortages, sales of System-in-Package (SiP) and Antenna-in-Package (AiP) increased during the 5G transition, and with LG Innotek's market share expansion, high growth is expected through next year. Analyst Park said, "Sales and operating profit of the substrate materials business, including semiconductor substrates, are estimated to increase by 24.4% and 30.9%, respectively, compared to the previous year in 2021," adding, "If entry into the Flip Chip Ball Grid Array (FC-BGA) market becomes visible next year, additional valuation reflection will also be possible."

Daishin Securities revised LG Innotek's earnings per share (EPS) upward by 9.7% for this year and 15.4% for next year. Analyst Park stated, "The current stock price valuation is at a historical low," and emphasized, "It is undervalued compared to other IT stocks, so a strategy to increase weighting is necessary."

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