To Turn to Black in 3Q22
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
We trim our TP for Power Logics, reflecting a downward revision to our 2022 earnings forecast due to slowing shipments at clients and heated competition. It is discouraging that the firm’s rechargeable battery-related business has yet to make a significant earnings contribution. Should an earnings recovery become visible, our investment rating and TP will likely see an upgrade.
Lower TP to reflect tepid demand in downstream industries and intense competition
We revise down our earnings estimates for Power Logics in light of likely margin deterioration stemming from slowing smartphone shipments at a main client and intensified competition among camera module makers. For TP calculation, we change our method from target P/E-based (P/E of 11x) to target P/B-based (5-year P/B average of 1.25x). In 2022, we expect the company to book losses.
Domestic camera module makers are currently struggling due to sluggish smartphone sales at domestic clients and aggressive price cut policies for cost reduction. As Power Logics has fewer years of depreciation for its machinery devices than peers, it is highly likely to book operating losses in 2022.
In our view, a full-fledged share price recovery looks unlikely unless the firm is backed by sales improvement at its main clients and improved earnings visibility at new businesses.
To turn to black in 3Q22
Over the mid/long term, however, the firm could enjoy steeper-than-expected share price uptrend if its businesses in the rechargeable battery (BMS), ESS, and waste battery arenas start to make meaningful earnings contributions.
Although Power Logics is projected to enter the black in 3Q22 on the back of shipment expansion at its main client, the firm is highly likely to book losses this year. Unless backed by either market share expansion with its main client or the adoption of conservative accounting standards, an immediate earnings recovery is not expected.