[Click eStock] "LG Innotek, Earnings Estimates Lowered... Growth Remains Valid"

[Asia Economy Reporter Kwon Jaehee] DS Investment & Securities maintained a 'Buy' rating on LG Innotek on the 27th but lowered the target price from 430,000 KRW to 360,000 KRW. This adjustment reflects revisions to this year's earnings estimates, while the growth outlook remains valid.

In the fourth quarter of last year, LG Innotek's sales amounted to 6.5 trillion KRW, and operating profit was 170 billion KRW, significantly below market expectations. This was attributed to exchange rates, production disruptions, and one-time costs.

By segment, the Optical Solutions division recorded sales of 18.1 trillion KRW and operating profit of 966.3 billion KRW, increasing by 13.3% and 7.9% year-on-year, respectively. While deferred demand and base effects are expected to boost sales in the first half, profitability is likely to be somewhat weak due to the impact of exchange rate declines and increased raw material costs. In the second half, profitability improvement is anticipated from the supply of folded zoom and the expanded application of the 48MF general model, leading to an increase in average selling price (ASP).

The Substrate Materials division is expected to deliver solid performance due to North American customers, including key RF-SiP and AiP clients, and profitability normalization is anticipated following the removal of one-time costs from the previous quarter.

For automotive components, sales growth is expected to continue in 2023. Including new orders worth 3 trillion KRW last year, the year-end order backlog reached 9.8 trillion KRW. With top-line growth, a return to profitability in 2023 is considered achievable.

Kwon Tae-woo, a researcher at DS Investment & Securities, stated, "At the end of last year, the stock price underperformed among major electrical and electronics stocks due to production issues and noise related to supply prices. However, visibility of earnings growth within the electrical and electronics sector is highest this year, highlighting its relative attractiveness."