[Click eStock] Urgent Check on Electronic Components Sector... Find Oversold and Absolutely Undervalued Stocks

[Asia Economy Reporter Lee Seon-ae] The electronic components sector has recently experienced increased volatility amid concerns over a slowdown in set demand and a peak-out. Nevertheless, as major domestic companies continue to strengthen their positions in the global market and structural improvements accelerate, investment advice suggests that a differentiated approach within the sector is effective.

On the 27th, Yuanta Securities stated, "Despite a clear mid- to long-term growth direction, the short-term decline is considered excessive, and although earnings visibility is secured, attention should be paid to representative stocks with high valuation appeal." The stocks recommended by Yuanta Securities are LG Innotek, Daeduck Electronics, and Isu Petasys, totaling three.

▲ LG Innotek (Target price KRW 510,000 / 22F PER 6.9x, 23F PER 6.6x)

LG Innotek is expected to achieve solid performance through strategic production efficiency during the off-season in the first half of the year, and from July, it is anticipated to benefit from gradually recovering demand based on the lifting of lockdowns in the China region. Additionally, the momentum from new model launches for key customers in September this year and an increase in average selling price due to spec upgrades in the new Pro series models are positive factors. As the second half progresses, mid- to long-term growth drivers are expected to become increasingly visible and act as future stock price momentum.

▲ Daeduck Electronics (Target price KRW 46,000 / 22F PER 7.4x, 23F PER 5.8x)

The supply increase of FCBGA is expected to be significantly limited, and despite numerous large-scale investment schedules in the global market, production capacity delays due to raw material/equipment procurement issues (Ajinomoto, Drilling Equipment, etc.) are projected to continue until 2024. The insufficiency ratio is forecasted at 9% in 2023, indicating a high level of supply-demand imbalance compared to the previous year, which is expected to sustain solid price trends. Meanwhile, proactive investments centered on FCBGA since 2019 have strengthened its position in the global market. Attention is drawn to the differentiated structural growth highlighted by 'product diversification focusing on high value-added products in 2022' and 'customer diversification in 2023,' with a high possibility of overall profitability improvement from a mid- to long-term perspective.

▲ Isu Petasys (Target price KRW 14,000 / 22F PER 5.5x, 23F PER 5.0x)

Operating profit for Q2 and this year is expected to reach a record high of KRW 26.6 billion (consensus KRW 21.5 billion) and KRW 100.5 billion (consensus KRW 84.2 billion), respectively. This is because, amid Japanese competitors withdrawing from the MLB business, global major customers are accelerating 'component sourcing away from China,' concentrating MLB orders on the company. The investment point is that the company's main customer base is expanding from wired network communication equipment companies such as Cisco and Nokia to server-related companies like Google, Intel, Microsoft, and Nvidia, and due to limited MLB supply conditions, order activities are focused on high value-added products.