Profitable Even in the Off-Season... Sluggish Performance of Mobile Phone Component Stocks

LG Innotek and Samsung Electro-Mechanics Falter
Rising Raw Material Costs Weaken Investment Sentiment
Demand Remains Steady, Q2 Rebound Expected

Last September, LG Innotek employees are inspecting testing equipment together at the LG Innotek Gumi plant. (Provided by LG Innotek) [Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Despite the off-season, the stock prices of mobile phone component stocks that posted strong earnings have struggled to break out of their sluggish trend. Attention is focused on whether they will rebound from the second quarter, as demand remains solid.

As of 9:12 a.m. on the 3rd, LG Innotek's stock price stood at 198,000 KRW, down 1.5% compared to the previous trading day. This is about a 6.4% drop compared to April 28, the day before the first-quarter earnings announcement. Despite posting a 'surprise performance' during the off-season, the stock price appears to be faltering.

Earlier, LG Innotek reported sales of 3.07 trillion KRW and operating profit of 346.8 billion KRW in the first quarter. This represents increases of 55.6% and 97.3%, respectively, compared to the same period last year. The company explained, "Despite the seasonal off-season and increased uncertainty due to COVID-19, high-performance products such as triple cameras for smartphones and 3D sensing modules led the earnings," adding, "Semiconductors for communications, substrates for mobile and display, and power components for electric vehicles continue to show growth."

Samsung Electro-Mechanics is in a similar situation. At the same time, its stock price recorded 178,500 KRW, down 0.30% from the previous trading day. This is about a 7% decline compared to the closing price on April 27, the day before the earnings announcement. Despite strong earnings, the stock has fallen for four consecutive trading days following the announcement. On April 28, Samsung Electro-Mechanics announced first-quarter sales of 2.3719 trillion KRW and operating profit of 331.5 billion KRW, representing an 11% increase in sales and a remarkable 99% increase in operating profit compared to the same period last year.

Both stocks not only posted strong earnings but also had their second-quarter earnings forecasts revised upward, suggesting sufficient momentum for further gains. Kim Rok-ho, a researcher at Hana Financial Investment, explained, "The rise in raw material prices such as steel and chemicals is believed to have dampened investment sentiment," adding, "Overall, production disruptions due to component supply shortages are inevitable but not at a severe level."

In particular, demand for multilayer ceramic capacitors (MLCC) and package substrates is expected to remain solid. Researcher Kim said, "In the case of package substrates, the supply shortage is severe, so there is a possibility of price increases," and added, "Although the slowdown in smartphone sales in China in March is a burden for MLCCs, considering the order backlog of Japanese companies and the increasing export volume from Korea, there is a possibility that future market forecasts will be exceeded."