2022 Forecast: Earnings Surprise with OP at KRW1.4tn
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
2022-2027 earnings from metaverse 3D sensing modules to surge over 100-fold
We maintain BUY and TP of KRW500,000 on LG Innotek, as the company looks like it will become the world’s exclusive supplier of 3D sensing modules, which are essential for metaverse headsets. Given that global tech companies poised to enter the metaverse market would be unable to launch their metaverse headsets without LG Innotek, we believe the company’s client base should expand, including Apple, Meta and Microsoft. Specifically, we forecast the following for metaverse headset 3D sensing modules:
(1) Soaring revenue (KRW19.0bn in 2021→KRW41.0bn in 2022→KRW105.0bn in 2023→KRW1.5tn in 2025→ KRW3.3tn in 2027).
(2) Surging OP (KRW2.6bn in 2021→KRW5.2bn in 2022→KRW15.8bn in 2023→KRW261.8bn in 2025→KRW528.0bn in 2027).
In other words, over a five-year period, we see revenue and OP for metaverse headset 3D sensing modules catapulting 80-fold (KRW41.0bn in 2022→KRW3.3tn in 2027) and 105-fold (KRW5.2bn→KRW528.0bn), respectively, with the equipment’s OP proportion of expanding from 0.4% to 22.4%.
2022 forecast: Earnings surprise with OP at KRW1.4tn
For 4Q21, we forecast OP at KRW429.8bn, which is well above the market consensus. Full-year earnings are highly likely to surprise vs. our revenue/OP estimates of KRW15.8tn/KRW1.4tn (+11% YoY):
(1) Quarterly avg. Substrate OP should exceed KRW100.0bn amid brisk shipments of semiconductor substrates and increase in ASP (e.g., impact of new iPhone rollout).
(2) Automotive Components should stage an earnings turnaround from 2H22 thanks to a KRW10tn order backlog and annual avg. of KRW3.0tn in new orders.
Grossly undervalued at only 8.0x P/E; strengthening ESG management to contribute to rerating
Trading at only 8.0x P/E, LG Innotek is grossly undervalued. We expect a rerating based on the following:
(1) The company is poised to become the exclusive supplier of 3D sensing modules, standing to benefit from the expanding metaverse and autonomous driving markets.
(2) Its client base should widen with additional global tech companies.
(3) Dividends should expand in the mid/long term and shareholder value should grow with stronger ESG management.
The company recently announced its 2022-24 dividend policy of raising payout ratio above 10% (6.9% in 2019→8.0% in 2021→11.0% in 2023).