[Click eStock] "LG Innotek, Absolutely Undervalued... Stock Price Expected to Strengthen Toward Year-End"

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[Asia Economy Reporter Kwon Jaehee] On the 22nd, KB Securities maintained its "Buy" rating on LG Innotek and set a target price of 570,000 KRW.

KB Securities judged that LG Innotek's 12-month forward price-to-earnings ratio (PER) of 6.4 times is significantly below the recent 5-year average (12.6 times), indicating an absolute undervaluation phase. In particular, since 2019, when the supply rate of iPhone Pro began to expand, LG Innotek's stock price has shown strength toward the end of each year due to expectations of improved quarterly performance, closing on average 62.5% (31.3% to 89.1%) higher at year-end (December 30) compared to the beginning of the year. Additionally, over the past three years (2019?2021), LG Innotek's stock price rose by an average of 33.3% during the two months of November and December following the new iPhone announcement, with an average increase of 17.3% in December alone.

The driver of LG Innotek's second-half performance is the iPhone 14 Pro. The iPhone 14 Pro accounts for 65% of total sales, an 18 percentage point increase from the previous model, marking an all-time high. LG Innotek has a significantly higher proportion of iPhone 14 Pro models compared to the standard iPhone 14, so the expansion of the iPhone 14 Pro series sales share is expected to be a direct factor in improving performance. Therefore, LG Innotek, which has secured an exclusive supply structure for the iPhone 14 Pro camera (accounting for 80% of iPhone sales), is expected to easily achieve an operating profit of 1 trillion KRW in the second half (a 25% increase year-on-year), with a substantial upside to second-half earnings anticipated.

Furthermore, benefits from the U.S. Inflation Reduction Act (IRA) are also expected. LG Innotek is anticipated to push forward with new expansion of the autonomous vehicle camera module production line at its Mexico plant, which is expected to bring benefits through proactive response to the IRA legislation. In particular, with an automotive order backlog of 12 trillion KRW and a full lineup of core autonomous vehicle components secured, LG Innotek's automotive division is expected to achieve profitability for the first time in seven years starting next year, driven by expanded supply to the North American market and customer diversification.

Dongwon Kim, a researcher at KB Securities, analyzed, "LG Innotek's current stock price of 343,500 KRW represents a -7.3% change compared to the beginning of the year (370,500 KRW), indicating an absolute undervaluation level. Considering this, the stock price is highly likely to show strength toward the end of the year."

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