[Click eStock] Expand Large IT Holdings Including Samsung Electro-Mechanics, LG Innotek, and LG Electronics

[Asia Economy Reporter Lee Seon-ae] Daishin Securities advised on the 4th to maintain an increased weighting in large IT stocks in the electrical and electronics sector due to strong earnings.

From this month, a rebound in large IT stocks' prices is expected. Previously, concerns were raised about supply disruptions in semiconductor components leading to reduced production of IT finished products and weakening untact benefits (due to visible effects of vaccines). The IT sector showed weakness due to the possibility of downward demand in the second half centered on PCs and TVs. However, considering that the Q2 2021 earnings exceeded consensus and production increased compared to the traditional IT peak season, a short-term price rebound is expected from June. Accordingly, among IT sectors, electronic components (electrical and electronics sector) are preferred due to expected utilization rate increases, maintaining Samsung Electro-Mechanics and LG Innotek as top picks.

Daishin Securities researchers Park Kang-ho and Lee Moon-soo stated, "Although the KOSPI rose 13% compared to the beginning of the year, the average stock price increase of the five large IT companies within the electrical and electronics sector (as of June 3, 2021) was only 5.2%," adding, "Even considering that the untact effect after COVID-19 (increased sales of mobile devices due to remote work and online education) was reflected in the second half of 2020 earnings, resulting in high stock price increases, further gains are expected due to strong earnings in the first half of 2021." They continued, "Operating profits of large IT companies in Q2 2021 are also expected to exceed consensus," and added, "Although production of IT finished products such as smartphones and TVs slowed, operating profit margins are expected to exceed consensus due to the mix effect of each company's main products and some price increases."

Samsung Electro-Mechanics is estimated to have an operating profit of 301.4 billion KRW due to high utilization of MLCC and some price increases in semiconductor PCBs, with a high possibility of exceeding this. LG Innotek is estimated at 134.3 billion KRW due to the expansion of triple (3) cameras in optical solutions and the mix effect of semiconductor substrates. LG Electronics is estimated to exceed consensus with 1.1714 trillion KRW due to the expansion of OLED TVs and increased sales of premium home appliances.