[Real Finance] "Thanks Apple"... LG Innotek, Jahwa Electronics, BH 'Good Good'

"AI Smartphones... Demand for iPhone Replacement Arises"
Possible to Trade Beneficiary Stocks at Once via ETF

As Apple unveiled its generative artificial intelligence (AI) feature 'Apple Intelligence,' expectations for component stocks are rising. Since Apple Intelligence will be available starting with the 'iPhone 15 Pro lineup,' it is anticipated that there will be a significant number of smartphone replacements.

LG Innotek is considered a representative beneficiary as it supplies camera modules for the iPhone. Especially in smartphones with AI applied, the camera can be a more prominent factor. Hyungwoo Park, a researcher at SK Securities, said, "Cameras can also be spotlighted in AI," adding, "Many of the functions emphasized in device AI are related to photo and video processing technologies."

He emphasized, "Until now, communication between users and devices has been through text or language," and "In the future, color information is expected to become another important communication method, and cameras become more important in 3D devices, security, and autonomous driving where AI is highlighted."

The securities industry expects LG Innotek's sales and operating profit this year to increase by 5.42% and 22.00% year-on-year to KRW 21.7229 trillion and KRW 1.0136 trillion, respectively. Kwangsoo Kim, a researcher at LS Securities, said, "The inclusion of folded zoom in the iPhone 16 Pro model and the upgrade of wide-angle camera pixels in the Pro and Max models will continue to have an effect of increasing the average selling price (ASP) of camera modules and improving costs."

Dongwon Kim, a researcher at KB Securities, said, "LG Innotek, which holds both performance improvement and new product launch momentum, is expected to see a significant performance improvement with the launch of the iPhone 16 in the second half of the year," emphasizing, "Users of iPhone 12 and iPhone 13 are expected to start replacing their phones from the iPhone 16 this fall, continuing large-scale replacement demand through the iPhone 17, raising expectations for the iPhone entering a big cycle."

Jahwa Electronics is also a stock expected to benefit on the camera side. Jahwa Electronics mainly manufactures optical image stabilization (OIS) parts. Since the produced OIS is supplied to LG Innotek, the strength of performance improvement is expected to vary depending on Apple’s new product sales volume. According to FnGuide, securities firms forecast Jahwa Electronics’ sales and operating profit this year to be KRW 907.5 billion and KRW 83.4 billion, respectively. Sales are expected to increase by 80.30% year-on-year, and operating profit is expected to turn positive.

Kangho Park, a researcher at Daishin Securities, said, "Jahwa Electronics has experience supplying OIS parts to Apple and has stabilized its production lines," adding, "It has secured customers including Apple, Samsung Electronics, and Chinese companies, and is expected to be a real beneficiary of the folded zoom market expansion this year."

BH, which supplies flexible printed circuit boards (FPCB) used in smartphone organic light-emitting diode (OLED) displays, is also considered a beneficiary stock. As Apple is expanding the adoption of OLED panels, performance improvement is expected. The expected sales and operating profit this year are KRW 1.7415 trillion and KRW 117.4 billion, respectively, representing increases of 9.39% and 38.49% year-on-year.

Researcher Hyungwoo Park said, "The stock price rise trend can continue in the second half as AI device momentum expands," and evaluated, "The new product launches of Qualcomm and Nvidia are also positive for AI momentum."

Seungsu Yang, a researcher at Meritz Securities, also predicted, "Following this year’s iPad Pro, additional OLED transitions are expected for iPad Mini, Air, MacBook Pro, and others," adding, "It is a time when benefits can be expected from various aspects such as AI smartphones, IT OLED, foldables, and automotive electronics sales expansion."

If you want to trade Apple beneficiary stocks all at once, using exchange-traded funds (ETFs) is also an option. Korea Investment Trust Management’s 'ACE Apple Value Chain Active ETF' is a product that invests in on-device AI value chain companies that will grow together with Apple. In particular, it can be invested up to 70% in defined contribution (DC) pension plans and individual retirement pensions (IRP). It can be invested up to 100% in personal pensions and ISAs. Since it is a domestically listed ETF, it is also attractive because it allows investment in overseas big tech companies without currency exchange.

The stocks composing this ETF include many overseas stocks such as Apple (24.05%), ARM (14.28%), TSMC (10.20%), and Micron (3.98%). Domestic stocks included are Samsung Electronics (3.95%), Samsung Electro-Mechanics (3.95%), LG Innotek (3.94%), and SK Hynix (3.92%).