[Click eStock] LG Innotek, Stronger iPhone Demand Than Expected

KB Securities Report

[Asia Economy Reporter Minji Lee] KB Securities maintained a buy rating on LG Innotek on the 28th and raised the target price by 5.5% to 570,000 KRW. This is because iPhone 14 demand is expected to be stronger than anticipated, and profitability improvement through vertical integration of components is anticipated going forward.

LG Innotek is expected to achieve its highest-ever performance in the second half of the year due to increased sales of optical solutions (camera modules) driven by strong iPhone 13 sales and the launch effect of the iPhone 14. Starting in September, production of high-end new iPhone models centered on the iPhone 14 Pro and Pro Max will be in full swing, leading to a sharp increase in the optical solutions business performance. Optical solutions sales in the second half are expected to reach 8.6 trillion KRW, a 46% increase compared to 5.9 trillion KRW in the first half.

In the second quarter, the company's operating profit was 289.9 billion KRW, a 91% increase compared to the same period last year, exceeding market expectations (255 billion KRW) by 14%. Operating profits for the third and fourth quarters are expected to be 418.8 billion KRW and 540.3 billion KRW, respectively, representing increases of 25% and 26% year-on-year, with quarterly record-high performance anticipated. Dongwon Kim, a researcher at KB Securities, explained, “While most stocks’ earnings are being revised downward due to economic recession and demand slowdown, LG Innotek, which has been continuously revising earnings upward since the beginning of the year, will see its relative value rise due to the rarity of earnings upgrades in the second half.”

Annual sales and operating profit are projected to grow 21% and 28% year-on-year, reaching 18.1 trillion KRW and 1.6 trillion KRW, respectively. The compound annual growth rate of operating profit is expected to reach 16% through 2024. Researcher Kim stated, “Starting with the iPhone 15 in 2023, LG Innotek will supply components and modules simultaneously for the first time, and profitability improvement through vertical integration of components is expected, leading us to revise controlling shareholder net profit upward by 4% and 12% for 2022 and 2023, respectively. The iPhone, the only bright spot in global IT demand, accounts for 80% of LG Innotek’s total sales.”

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