Stock Rerating Anticipated
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
With iPhone orders forecast to reach record in 4Q22, order inflow to surge
We maintain BUY and TP of KRW570,000 on LGI. Despite uncertain macro conditions, Optics Solution should benefit from a surge in iPhone 14-bound orders in 4Q22 (+30-40% QoQ), as the share of premium Pro/Pro Max series is expected to reach a record 85% in 4Q22 (vs. 65% in 4Q21). The Pro series, which is LGI’s main focus, is forecast to account for a record 58% of initial iPhone shipments (+15% YoY; 93mn units in Sep-Dec 2022). We attribute the increased share of premium models to (1) a dearth of competitors to the iPhone globally in 2022-2023 and (2) resilient sales despite a global recession and inflationary pressure.
2H22 forecast: OP at KRW1tn
We forecast 2H22 OP at KRW1tn (+25% YoY) given the following:
(1) The share of Pro series-bound orders is growing.
(2) Camera pixel upgrades are fueling ASP hikes.
(3) Supply of front cameras is new.
We estimate 2H22 Optics Solution revenue (iPhones account for 80% of revenue) of KRW8.6tn (+46% HoH, +12% YoY), or 59% of the division’s full-year revenue, with 3Q22 OP of KRW418.8bn (+45% QoQ, +25% YoY) and 4Q22 OP of KRW540.3bn (+29% QoQ, +26% YoY), which should beat the market consensus.
Anticipate rerating after sufficient corrections over past eight months
Over the past eight months, LGI stock has seen sufficient corrections, falling to 6.0x P/E. We believe this will wind down given that earnings are expected to hit a record in 2H22 (surging iPhone orders in 4Q22) and new business ventures (related to mixed reality, ADAS) are accelerating. In 2023, we expect Automotive Components, which has secured an order backlog of KRW12tn, to see an earnings turnaround, marking the first in seven years. Overall, LGI, which supplies key components (e.g., cameras, LiDAR, radar, V2X) for the autonomous vehicles of 30 global automakers, should increase supply to North American EV/autonomous vehicle manufacturers in 2023, thus we anticipate a stock rerating fueled by business diversification.