'Earnings Surprise' LG Innotek, Q3 Looks Even Better

[Asia Economy Reporter Suyeon Woo] LG Innotek achieved balanced performance growth in key businesses such as camera modules and semiconductor substrates, delivering an earnings surprise in the second quarter of this year. Expectations are rising that, supported by the launch of new smartphones by client companies in the third quarter and the second half of the year, LG Innotek will enter an era of annual sales of 10 trillion KRW and operating profit of 1 trillion KRW.

According to industry sources on the 31st, LG Innotek recorded sales of 2.3547 trillion KRW and operating profit of 151.9 billion KRW in the second quarter of this year. Compared to the same period last year, sales increased by 55.9% and operating profit surged by 178.3%. This is a surprise performance that greatly exceeded market consensus.

A company official 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 drove the performance," adding, "Sales of semiconductor substrates for 5G communications, display substrates, and automotive cameras and communication modules increased, supporting the results."

LG Innotek 3D Sensing Camera Module / Photo by LG Innotek

In the financial investment industry, LG Innotek’s strong performance in the second half of the year is anticipated, leading to a series of upward revisions in earnings forecasts. The reasons for the upward revisions include the expansion of sensor-shift equipped models in new smartphones from North American clients, increased market share of 3D ToF modules, and improved profitability of semiconductor substrates.

According to FnGuide, the consensus for LG Innotek’s sales in the third quarter of this year is 3.1865 trillion KRW, a 42% increase year-on-year, and operating profit is expected to rise 192% to 261.6 billion KRW. Jongwook Lee, a researcher at Samsung Securities, said, "The upgrade in camera specs by client companies is expected to more than offset the price decline caused by single-item deliveries," adding, "Along with client shipment volumes, this will be a trigger for an earnings surprise."

Researcher Kyuha Lee of NH Investment & Securities also raised earnings estimates and revised the target stock price upward from 300,000 KRW to 350,000 KRW. Lee said, "Strong sales of new products from client companies are expected to deliver results far exceeding market expectations in the second half," adding, "The stock price momentum is expected to be maximized in the fourth quarter when new products are scheduled to be launched."

He continued, "While maintaining growth through the expansion of sensor-shift and 3D sensing installations, as well as the favorable trend in substrates, the upcoming launch of XR devices by North American clients will highlight LG Innotek as a representative beneficiary stock of the metaverse in the future."