[Click eStock] "LG Innotek Smoothly Navigates Off-Season"

Although Kwanghwak Solution was somewhat sluggish... Production Efficiency ↑

[Asia Economy Reporter Minwoo Lee] LG Innotek is analyzed to be passing through the off-season second quarter relatively smoothly. Although it is expected to perform somewhat worse than the first quarter due to the sluggish optical solutions segment, it is forecasted to record solid results compared to the same period last year.

On the 22nd, IBK Investment & Securities maintained its 'Buy' rating on LG Innotek and raised the target price by 7.14% to 300,000 KRW. The closing price the previous day was 226,000 KRW.

The off-season second quarter results are expected to show sales of 2.3785 trillion KRW and operating profit of 137.9 billion KRW. This represents a decrease of 22.5% and 60.2%, respectively, compared to the previous quarter. Although it seems somewhat sluggish, it has increased compared to earlier forecasts. Compared to the same period last year, sales and operating profit are expected to increase by 57.5% and 148.9%, respectively.

The main cause is the sluggish optical solutions segment. The optical solutions division's sales are expected to decrease by 30.6% from the previous quarter to 1.5678 trillion KRW. There have been many concerns that LG Innotek’s performance will significantly deteriorate due to changes in the purchasing method of its overseas customer Apple starting this year, but IBK Investment & Securities diagnosed this as an 'unfounded fear.' Researcher Kim Unho of IBK Investment & Securities explained, "The customer's camera specifications are continuously being upgraded, and there are no additional suppliers (vendors) added immediately. Although supplying single components rather than modules causes unit price declines, expanding the supply model allows for an increase in supply volume, enabling external growth."

The substrate materials division's sales are expected to increase by 0.5% from the first quarter to 356.6 billion KRW. Researcher Kim said, "2-metal chip-on-film (CoF) will perform worse than in the first quarter, but display-related tape substrates and photomasks are expected to improve in the second quarter as well. Packaging is also expected to increase with the expansion of the 5G market." The automotive components division's sales are also expected to increase by 0.3% from the first quarter to 335.3 billion KRW, estimated to be due to production sluggishness caused by supplying core automotive parts.

Researcher Kim stated, "Optical solutions have greatly improved production efficiency to secure profitability above the break-even point (BEP) even during the off-season of overseas customers," and added, "Operating profit in the first half of this year is expected to exceed twice that of the first half of last year."