[Click eStock] "LG Innotek Lowers 4Q Earnings Forecast Due to iPhone Production Disruptions... Target Price Down"

[Asia Economy Reporter Myunghwan Lee] Kiwoom Securities announced on the 14th that it maintains a buy rating on LG Innotek but lowers the target price from 470,000 KRW to 430,000 KRW. This is due to the expectation that the company's Q4 performance this year will be weaker than anticipated.

Kiwoom Securities' estimated operating profit for LG Innotek in Q4 this year is 481.4 billion KRW, a 12% increase compared to the same period last year. However, this figure is a downward revision from Kiwoom Securities' previous Q4 earnings forecast.

Kiwoom Securities explained that the production disruption of the new iPhone, caused by the lockdown of Foxconn's Zhengzhou factory due to China's 'zero-COVID' policy, has been factored in. The recent strength of the Korean won has also had an impact. Foxconn's November sales dropped 29% compared to the previous month, and considering that sales usually increase in November, Kiwoom Securities analyzes that the situation is serious.

They also noted that investment sentiment toward LG Innotek will improve only after the production of the new iPhone normalizes. Kiwoom Securities expects the production normalization of the new iPhone series to occur in January next year.

Despite production disruptions, the product mix of the iPhone 14 series remains favorable. The sales proportion of the premium 'Pro' lineup of the iPhone 14 series was 70% during the first two months after launch, and Kiwoom Securities expects it to maintain over 60% until next year. The camera components of the Pro model are known to have a high supply share from LG Innotek.

Additionally, Kiwoom Securities forecasts that the automotive components division will continue its profit trend in Q4, supported by easing supply issues of automotive semiconductors. However, semiconductor substrates have seen a price decline due to weak demand, and system-in-package (RF-SiP) and antenna-in-package (AiP) components are expected to continue facing difficulties due to the iPhone production disruptions.

Nonetheless, Kiwoom Securities assesses that LG Innotek's profit visibility for next year is high. They estimate LG Innotek's operating profit for next year to increase by 8% year-on-year to 1.7026 trillion KRW. They expect the optical solutions segment to see price increases as the iPhone 15 series is scheduled to adopt a folded zoom camera. Growth in cameras for autonomous driving and extended reality (XR) devices is also anticipated. The automotive components division is expected to achieve an annual profit turnaround based on an order backlog exceeding 12 trillion KRW as of the end of this year.

Kim Jisan, head of Kiwoom Securities Research Center, stated, "Although Q4 is weaker than expected, profit growth visibility led by optical solutions has increased significantly for next year," adding, "Considering next year's profit growth, the valuation attractiveness is sufficient."

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