[Click eStock] "LG Innotek Secures Mid- to Long-Term Growth Drivers... Will Act as Stock Price Momentum"

[Asia Economy Reporter Kwon Jae-hee] Yuanta Securities maintained a 'Buy' rating and a target price of 510,000 KRW for LG Innotek on the 3rd.

LG Innotek's Q4 earnings are expected to show sales of 6.4 trillion KRW and operating profit of 425.4 billion KRW. Sales represent a 12% increase compared to the same period last year, while operating profit is estimated to have decreased by 1%. Operating profit by business segment is estimated at 358.9 billion KRW for camera modules, 62.5 billion KRW for substrate materials, and 1.6 billion KRW for automotive components.

Researcher Baek Gil-hyun of Yuanta Securities analyzed, "Even excluding one-time year-end expenses, short-term earnings weakness is inevitable due to production disruptions caused by China's lockdown and sluggish set demand."

LG Innotek's main client, Apple, saw its stock price fall 12% over the past month, while LG Innotek's stock dropped 18% during the same period. The decline in iPhone sales starting in October due to production disruptions from the China lockdown appears to have reflected concerns over LG Innotek's Q4 earnings weakness last year.

However, the announcement on December 23 last year of a new investment worth 1.65 trillion KRW to strengthen the optical solutions business seems aimed at mass production of new products in the second half of this year.

Researcher Baek said, "It is a positive event in that LG Innotek has secured mid- to long-term growth drivers while continuously strengthening its position within key customers. However, considering that the large-scale investment focused on optical solutions will increase fixed costs, short-term visibility of operating profit growth is somewhat limited, and there is a lack of stock price momentum."

He added, "Nevertheless, since the mid- to long-term growth direction is clear, the growth drivers are expected to gradually become visible and act as stock price momentum as we move past the second half of this year."