DS Investment & Securities said on the 7th that concerns about demand due to the recent price hike announcements for products by Chonbang customer companies such as smartphones are excessive, and that additional growth is expected in the second half of the year thanks to higher specs. It maintained its investment opinion at "Buy" and raised its target price to 1.3 million won from 660,000 won. The previous trading day's closing price was 855,000 won.
Cho Dae-hyung, a researcher at DS Investment & Securities, said, "On a consolidation basis, LG Innotek's second-quarter sales this year are projected at 4.8778 trillion won, up 24.0% from a year earlier, and operating profit at 191.2 billion won, up 1,578.0% (operating margin 3.9%)," and added, "Despite the relative off-season, an earnings surprise is expected that will far exceed the market consensus of 159.9 billion won."
Cho cited a favorable exchange-rate environment and the continued long-tail demand effect for existing products as reasons for the expected strong results.
Cho said, "For next-generation smartphone models to be released in the second half, the specs of camera modules are set to be raised, including the adoption of a variable aperture, so an increase in average selling price (ASP) is expected," and predicted, "In particular, models to be released next year mark the 20th anniversary of the line, so they should benefit from higher added value driven by additional spec upgrades."
Growth in the Package Solution division, which handles substrates and more, also bears watching. Substrate products that have steadily stood out, such as RF-SiP and FC-CSP, have effectively entered full-operation status, and FC-BGA, where the company entered as a latecomer, is also seeing global supply discussions expand rapidly.
Cho analyzed, "As the tight supply-demand environment continues, the company's pace of capacity expansion will likely accelerate faster than expected," adding, "Starting in the second half of this year, full-scale orders for next year's mass-production products are anticipated, so the contribution to profit is expected to keep expanding."
As for LG Innotek's stock price pullback on concerns about demand slowing after news that Chonbang customer companies raised product prices recently, Cho noted it was "an excessive concern."
Cho said, "For standard models, a large price increase will likely be limited," and explained, "Even if sales fall short of expectations due to price hikes, profitability can be sufficiently defended through unit-price increases stemming from higher camera specs and cost-saving efforts such as expanding production bases in Vietnam."
Reflecting the increased profit contribution from the Package Solution division, DS Investment & Securities raised its operating profit estimates for this year and next by 11.1% and 15.5%, respectively, from previous levels.