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LG Innotek: Foxconn eases restrictions on Zhengzhou campus | Jobs Vox

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The author is an analyst at Shinhan Securities Co. He can be reached at [email protected]. — Ed.

4Q preview: OP fails due to unfavorable forex conditions

We now expect LG Innotek to post an operating profit of 442.6 billion won in 2016, down from our previous estimate of 596.3 billion won. We believe that the USD/KRW exchange rate decline and China’s smartphone supply chain production disruptions have had a significant impact on the company’s earnings. Near-term earnings may disappoint, but we remain bullish, with stocks already down and weak 4Q22 results creating a low base for growth in 2023.

Stands out among IT giants

Profitability may decline in January 23 as inventory builds in 2022. The pace of China’s economic recovery is likely to be an important factor affecting overall earnings in the near term.

However, LG Innotek has the highest revenue growth forecast for 2023 among major IT components/electronics stocks, backed by new product launches and ASP growth for camera modules. High-resolution, front-facing camera modules will contribute more to next year’s sales, fueling a new influx of foldable zoom camera modules. Despite uncertain demand for tech products and declining sales across the board, we believe LG Innotek is poised to outperform its IT peers, with 2Q13 earnings likely to grow year-on-year.

For the whole year, the company’s operating profit will be 1.5 trillion in 2022. We expect it to increase to 1.7 won in 2023.

Keep BUY and target price at KRW 450,000

Shares of LG Innotek have corrected 32% from their previous peak recorded on March 22, 2022. We believe weak 4Q22 results are expected due to unfavorable currency conditions, mostly priced at current levels.

Despite the adjusted EPS forecast, shares continue to trade at a bargain 2022F PER of 6.3x following a recent revision amid expectations of earnings growth in 2023. Even if smartphone sales are down overall. , camera module and component suppliers should continue to see growth driven by demand for folding zoom camera modules, camera modules for EV applications, and mixed reality (MR) camera modules. Meanwhile, a decline in orders for smartphone parts from production restrictions at Foxconn’s Zhengzhou campus has led to a faster inventory adjustment seen at the end or beginning of the year, but a recovery has already begun as restrictions eased recently. In today’s macro uncertainty, we believe investors should focus on companies that are able to increase market share, raise prices, or deliver new products to customers. In our opinion, LG Innotek fits right in among the big numbers in IT.

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