Prime Beneficiary of Blossoming Metaverse Market
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Top pick for sector
We maintain BUY and 12m TP of KRW300,000 (38.5% upside) for LG Innotek. We recommend LG Innotek as our top pick for the sector, since we believe: (1) the company is well positioned to become a prime beneficiary of the metaverse market and Apple Car; and (2) current investor concerns (e.g., decline in 2022E revenue/profit, intensifying competition from the increase in camera module suppliers) should prove to be groundless. With the stock currently trading at 6.0x P/E, we believe the concerns have already been priced in. We expect LG Innotek’s market share of camera modules to expand more than we initially forecast, as Chinese/Japanese suppliers have been cut off from the supply chain of LG Innotek’s North American strategic client as their production disruptions drag on.
Prime beneficiary of blossoming metaverse market
Apple is expected to enter the metaverse market via an essential XR device (XR, which stands for extended reality, encapsulates AR and VR). OLED and high performance cameras will be essential for such devices, as they are lightweight and allow for high definition quality and short response times, as well as flawless image transition amid vertical/lateral head movements. The market for XR devices, which is expected to blossom beginning in 2022, is expected to grow at a rate as rapid as the smartphone market did at its initial stage. LG Innotek, which has the potential to be a supplier of key components for Apple’s XR devices, is well positioned to become a prime beneficiary of this booming market.
Potential component supplier for Apple Car
Assuming that Apple Car is developed without partnerships with automakers, it is highly likely that Apple will hold sway in the development of required hardware/software. In this respect, Apple will most likely capitalize on its market-proven iPhone supply chains. Against this backdrop, LG Innotek should see its camera module business expand further, as it is already a supplier of automotive camera modules and autonomous car components to more than 15 automakers (incl. the largest EV maker in North America). Furthermore, LG Innotek is already producing key autonomous EV components (automotive component lineups: motor sensors, camera modules, LiDARs, wireless communication modules), so we believe it is sufficiently capable of becoming a part of the Apple Car supply chain.