[Click eStock] LG Innotek, Strong Performance Expected in Second Half... Target Price Raised to 350,000 Won+

Korea Investment & Securities raised the target price for LG Innotek from 320,000 KRW to 350,000 KRW on the 25th, expecting continued benefits from strong iPhone sales in the second half of the year. The investment rating was maintained as a buy.

Park Sang-hyun, a researcher at LG Innotek, stated in the report, "The previous target price of 320,000 KRW was calculated by applying a 20% discount to the average price-to-book ratio (PBR) of 1.65 times from 2019 to 2020, but considering that China-related risks have been resolved faster than expected, the discount rate was lowered to 15%." He added, "The key points to watch in the second half are whether iPhone sales in China will continue and the completeness of the Apple Intelligence beta version."

LG Innotek’s second-quarter revenue was 4.56 trillion KRW, and operating profit was 151.7 billion KRW, exceeding Korea Investment & Securities’ estimate of 105 billion KRW and the consensus of 104.9 billion KRW by 44.7%.

Researcher Park Sang-hyun analyzed, "The factors behind the strong performance were favorable exchange rates and the iPhone 15 sales in the second quarter due to the base effect from the first quarter." He added, "The improvement in profitability from fixed cost effects was greater than expected, and the increase in operating profit due to fixed cost effects from production volume growth exceeded expectations."

Strong sales of the iPhone 16, to be released in the second half, are also anticipated. Currently, the global smartphone replacement cycle is 51 months, but in North America and Western Europe, where premium smartphones dominate, it is 41 months, which is 10 months shorter.

Researcher Park Sang-hyun said, "Assuming Apple Intelligence shortens the replacement cycle by 5 months, the potential demand for the iPhone 16 can be inferred from the sales volume of the iPhone 13 in 2021." He added, "Considering that the total iPhone sales in 2021 reached a record high of 228 million units, LG Innotek’s second-half performance is also expected to benefit from strong iPhone 16 sales."