[Inside the Stock] LG Innotek Forecasts Record-Breaking Earnings... Apple Tailwind Still Remains

Record High Sales Expected in Q1
Largest Client Apple’s Next Product Anticipation
Operating Profit May Approach 1 Trillion Won This Year

[Asia Economy Reporter Kwon Jaehee] As LG Innotek forecasts record-breaking earnings for the first quarter of this year, analysis suggests that there is still momentum for its stock price to rise. Expectations for Apple's next-generation iPhone, LG Innotek's largest client, are driving projections that this year's operating profit will approach 1 trillion won.

According to LG Innotek's earnings consensus compiled by financial information firm FnGuide on the 14th, LG Innotek's first-quarter sales are expected to reach 3.8244 trillion won, with an operating profit of 326.3 billion won. Sales represent a 24.6% increase compared to the same period last year, marking the largest first-quarter sales ever. Although operating profit is forecasted to decrease by 5.9%, some securities firms believe it could surpass the operating profit recorded in the first quarter of last year. Hana Financial Investment raised LG Innotek's first-quarter operating profit forecast by 3% year-on-year to 358.5 billion won, and Hi Investment & Securities adjusted its forecast upward to 361 billion won.

LG Innotek's strong performance is largely thanks to Apple, as a significant portion of LG Innotek's sales come from Apple. According to LG Innotek's business and audit reports, sales generated from transactions with Apple amounted to 11.1924 trillion won last year. This represents a 73% increase compared to 6.4618 trillion won in 2020. The proportion of total sales accounted for by Apple also jumped from 68% in 2020 to 75% in 2021. In other words, three-quarters of LG Innotek's total sales come from Apple.

LG Innotek's core business is camera modules for iPhones. It emerged as a key component supplier when the iPhone X was equipped with a dual camera in 2017. The share of Apple in LG Innotek's sales was only 37% in 2016 but has surged every year since.

Especially this year, strong sales of the iPhone 13 and a favorable proportion of the Pro lineup for LG Innotek are expected to result in record-breaking earnings. Apple’s global premium smartphone market share exceeding 60%, along with the launch of the iPhone SE to target the mid-to-low-end market, also raises expectations for LG Innotek's performance. Although the next-generation iPhone is estimated to have slightly lower volume compared to previous models, the inclusion of a 48-megapixel camera is expected to increase the average selling price, with operating profit from the optical solutions segment projected to approach 1 trillion won.

Securities firms are also issuing positive outlooks for LG Innotek. IBK Investment & Securities raised its target stock price from 415,000 won to 520,000 won.

Kim Unho, a researcher at IBK Investment & Securities, said, "We believe the stock price is still undervalued relative to earnings."