LG Innotek, Marching Forward with High Expectations for Earnings

Average Operating Profit Estimate Up 32%
Stock Price Up 130% Since End of March

[Asia Economy Reporter Oh Ju-yeon] Ahead of the Q2 earnings season, LG Innotek's stock price is soaring. After plummeting at the end of March due to the impact of the novel coronavirus infection (COVID-19), LG Innotek successfully rebounded strongly, with its stock price more than doubling. With expectations for solid earnings growth in the second half of the year, further gains are anticipated.

According to financial information provider FnGuide on the 6th, the average operating profit estimate for LG Innotek in Q2 this year, predicted by three or more securities firms by the end of last month, was 24.7 billion KRW, expected to increase by 31.8% compared to the same period last year. This figure is about 51.2% higher than the estimate of 16.4 billion KRW a month ago, and the growth margin continues to expand over time.

Recently, Mirae Asset Daewoo and Shinhan Investment Corp. forecast LG Innotek's Q2 operating profit at 46 billion KRW and 49.5 billion KRW, respectively. They explained that strong sales of the iPhone SE model and the 4th generation iPad Pro, along with favorable exchange rate effects, are expected to deliver results exceeding market expectations. Park Sung-soon, a researcher at Cape Investment & Securities, diagnosed, "Although global mobile demand weakness due to COVID-19 persists through Q2, the timely launch of the iPhone SE and price cuts for the iPhone 11 resulted in better-than-usual sales during the off-season. Additionally, iPad demand remained steady due to the impact of remote work, which diluted the off-season effect in the optical solutions segment." Shinhan Investment Corp. expects the optical solutions segment's sales in the first half of the year to increase by 52% year-on-year.

LG Innotek's second-half earnings are attracting even more attention. Park Kang-ho, a researcher at Daishin Securities, predicted, "Operating profit in Q3 is expected to increase to 118.4 billion KRW, and in Q4, reflecting the carryover volume of optical solutions, it is estimated to reach a record quarterly profit of 307.4 billion KRW."

Fueled by these earnings expectations, the stock price has surged more than 130% since the end of March. The stock price, which fell to 75,700 KRW intraday on March 19 due to COVID-19, rose to 173,500 KRW as of 10:09 AM on the day. Although the price has more than doubled from its low point, the securities industry sees about 20% additional upside potential and is raising target prices. Mirae Asset Daewoo raised LG Innotek's target price from 201,000 KRW to 221,000 KRW, expecting more than 27% upside potential. Park Hyung-woo, a researcher at Mirae Asset Daewoo, said, "Significant earnings improvement is expected from the second half of this year," adding, "This year is expected to deliver record-high earnings."