[Click eStock] "LG Innotek, Short-Term Earnings Volatility Increases... Target Price Down"

Target Price Revised Down from 360,000 Won to 320,000 Won

Shinhan Investment Corp. on the 26th downgraded the target price for LG Innotek from 360,000 KRW to 320,000 KRW, citing an expected increase in short-term earnings volatility. The investment rating was maintained at 'Buy.'

Oh Kang-ho, a researcher at Shinhan Investment Corp., stated, "We have revised the expected 2024 earnings per share (EPS) from 35,123 KRW to 31,205 KRW," adding, "We anticipate increased earnings volatility in the short term due to smartphone demand and exchange rate impacts, but we believe the company will enter a phase of earnings improvement starting with an industry recovery in 2024."

Shinhan Investment Corp. lowered LG Innotek's third-quarter operating profit estimate from 296.8 billion KRW to 253.1 billion KRW. The fourth-quarter operating profit estimate was also adjusted to 458.1 billion KRW, a 5% decrease compared to the same period last year. Researcher Oh explained, "The conservative estimate is due to the use of AI features through updates after the initial launch, despite the notable unveiling of artificial intelligence (AI) functions." He added, "However, consumer satisfaction is expected to improve with the actual application of AI features, and the sales of new products from major global vendors are projected positively, following the recovery trend in flagship sales of existing competitors." He further noted, "We expect recovery this year and accelerated growth next year."

Despite the downward revision of earnings estimates for the second half of the year, the outlook for industry recovery remains valid. Researcher Oh said, "Although we have lowered earnings estimates for the second half, we maintain the outlook for industry recovery," adding, "LG Innotek is expected to achieve growth compared to the previous year. While short-term surprise improvements in shipment volumes are unlikely, the story of improved smartphone demand driven by expanded AI features over the long term remains valid."