[Click eStock] LG Innotek, Expected Record High Q4 Performance... Target Price Upward Revised

IBK Investment & Securities Report
Q4 Revenue Expected at 3.65 Trillion KRW
Low Preference by Institutional Investors...Stock Undervalued

[Asia Economy Reporter Minji Lee] IBK Investment & Securities maintained a buy rating on LG Innotek on the 4th, expecting the company to deliver record-high earnings in the fourth quarter, and adjusted the target price to 220,000 KRW, a 10% increase from the previous target.

LG Innotek's fourth-quarter estimated sales are expected to reach 3.6486 trillion KRW, a 63.6% increase from the previous quarter. This is an upward revision from earlier forecasts. Kim Unho, a researcher at IBK Investment & Securities, said, "All business divisions are expected to deliver higher-than-previously-anticipated results," adding, "Sales from all divisions except the other business division are expected to increase compared to the third quarter."

The optical solutions division is expected to drive growth, with sales estimated to increase by about 97% to 2.8723 trillion KRW. Operating profit is expected to be more than ten times higher than the previous quarter. The profitability of the optical solutions division is normalizing, and profitability is estimated to have improved as sales in each division slightly increased.

Sales in the substrate materials division are expected to increase by 4.5% compared to the third quarter. Although package sales are expected to maintain steady growth, the volume of 2 Metal COF is anticipated to decline significantly. Sales in the automotive components division are projected to increase by 6% quarter-on-quarter due to the normalization of automobile production.

Sales in the other business division are expected to decrease by about 23%. General components are expected to decline by 8% quarter-on-quarter due to seasonality, and LED sales, which are scheduled to be discontinued in 2022, are expected to drop by more than 40%.

LG Innotek shows the strongest earnings seasonality within the IT sector. Nevertheless, the scale of profits has been steadily increasing. It recorded 264 billion KRW in 2018, 403 billion KRW last year, and is expected to reach 606 billion KRW this year.

Researcher Kim Unho explained, "The current market capitalization is extremely undervalued," adding, "Concerns about changes in overseas customers' purchasing policies after next year are unwarranted, as business division profitability is improving through restructuring and camera module competitiveness is outstanding. The excessively low preference from domestic institutional investors is also contributing to the undervaluation."

He continued, "The recent issues regarding product supply methods and new participants are variables that could affect performance after next year," and said, "There is no basis to conclude negatively, so the target price has been raised."