[Click eStock] LG Innotek, PER Too Low for Apple's Partner
[Asia Economy Reporter Kwon Jae-hee] Eugene Investment & Securities maintained a 'Buy' rating on LG Innotek on the 30th, setting a target price of 400,000 KRW.
LG Innotek's third-quarter performance exceeded market expectations with sales of 5.38 trillion KRW and operating profit of 444.8 billion KRW. The Optical Solutions division's sales reached 4.43 trillion KRW, a 58.4% increase from the previous quarter, driven by the rise in average selling price (ASP) due to the camera specifications of Apple's iPhone 14 series.
Fourth-quarter results are expected to be sales of 7.52 trillion KRW and operating profit of 623.6 billion KRW. Negative news includes a labor exodus and protests at Foxconn's Zhengzhou factory in China, causing production disruptions amounting to 6 million iPhones. However, since this is likely a supply delay, any resulting stock price decline could present an opportunity.
LG Innotek's full-year performance is projected at sales of 20.1 trillion KRW and operating profit of 1.7 trillion KRW. Next year, sales are expected to slow to 20.4 trillion KRW with operating profit of 1.6 trillion KRW. The company has been selected as the supplier of the rear folded zoom camera for Apple's upcoming iPhone 15 series and is expected to supply some front cameras instead of Chinese companies. Despite weak smartphone market demand, LG Innotek is seen to have opportunities for ASP growth and volume increase. Beyond smartphones, LG Innotek is expected to continue its partnership with Apple, which is preparing to expand its IT device business into XR devices and Apple Car. However, the risk remains that it cannot be completely free from the impact of the global IT demand downturn.
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Researcher Lee Seung-woo of Eugene Investment & Securities said, "Apple's current valuation is a price-to-earnings ratio (PER) of 24 times, which is excessively low compared to 9 to 20 times for Apple's major supply chains," adding, "We maintain a 'Buy' rating with a target price of 400,000 KRW, applying a target PER of 8 times based on next year's expected performance."
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