[Market Focus] LG Innotek Weakens on Profitability Deterioration

Despite achieving its highest-ever quarterly revenue in the first quarter, LG Innotek is seeing its profitability deteriorate, resulting in a decline of over 5%.

As of 9:54 a.m. on April 24, LG Innotek was trading at 137,400 won on the Korea Exchange, down 8,100 won (5.57%) from the previous day.

The previous day, LG Innotek announced its first-quarter results for this year. First-quarter revenue reached 4.9828 trillion won, up 15% year-on-year, but operating profit fell 28.9% to 125.1 billion won. The company explained that, despite the seasonal off-peak period, it achieved record quarterly revenue due to the stable supply of high-end smartphone camera modules, a recovery in demand for substrates used in semiconductors and displays, and favorable exchange rate effects. However, it cited the slowdown in the growth of the electric vehicle industry and intensified competition in the optics segment as factors that contributed to the decline in operating profit.

The outlook for the second quarter is also negative. Yang Seungsu, an analyst at Meritz Securities, stated, "The second quarter is typically an off-season for Apple's supply chain, during which inventory adjustments are made for legacy models. This year, due to inventory buildup that occurred in the first quarter, a more pronounced inventory adjustment is expected compared to previous years." He added, "Reflecting this, we forecast LG Innotek's second-quarter operating profit at 73 billion won, which is 9.8% below the consensus (the average forecast of securities firms)." He continued, "In the second half of the year, uncertainty surrounding IT set demand is increasing due to tariff effects. In particular, with concerns about a slowdown in IT demand centered in North America, the fact that North America accounted for 28% of customer shipments last year is a significant burden." Meritz Securities lowered its target price for LG Innotek from 220,000 won to 180,000 won.

Kim Jongbae, an analyst at Hyundai Motor Securities, also said, "We expect second-quarter revenue to decrease by 15.1% year-on-year to 3.8654 trillion won, and operating profit to fall by 53.8% to 70.1 billion won." He added, "The second quarter, following the first quarter, is a seasonal off-peak period, so customer set shipments will be limited. In particular, considering the impact of new entry-level product launches in the first quarter, a quarter-on-quarter decline in results is inevitable." He went on to say, "Profitability continues to suffer due to intensifying competition in camera modules, and given the uncertainty in smartphone demand this year, it will take some time for results to recover." Hyundai Motor Securities lowered its target price for LG Innotek from 225,000 won to 190,000 won.