Likely to Deliver Earnings Surprise in 2Q22

The author is an analyst of KB Securities. He can be reached at  jeff.kim@kbfg.com. -- Ed.

 

TP of KRW540,000; Improved 2H22 earnings visibility         

We maintain BUY on LG Innotek and our 12m TP of KRW540,000 in light of the following:

(1) Display panel and module producers expect shipments of iPhone 14 (to be released in September) to be 20% greater than those of iPhone 13 last year, indicating greater likelihood of earnings improvement for LG Innotek in 2H22.

(2) The company is anticipated to deliver a positive earnings surprise in 2Q22. 

Amid accelerating inflation, consumer spending has become increasingly polarized, with only ultra-high-end and ultra-low-end products seeing brisk sales. As such, sales of high-end iPhone models (iPhone Pro & Pro Max), on which LG Innotek is focused, should remain robust. 

Likely to deliver earnings surprise in 2Q22, be sole player among big tech names to beat consensus     

We have revised up 2Q22E OP by 35% (KRW201.2bn→KRW271.0bn). Despite 2Q being the lowest-demand season for LG Innotek, the company should post record 2Q results this year thanks to unexpectedly strong sales of high-end iPhone 13 models driven by the polarization in consumer spending amid inflation. We expect 2Q22E revenue to surge 54% YoY to KRW3.6tn and OP 78% YoY to KRW271.0bn, with LG Innotek being the sole player among big tech names to beat consensus by a wide margin. 

Full-scale production of parts for new iPhone to begin in August, boosting 2H22 earnings   

LG Innotek should begin full-scale production of parts for the iPhone 14 in August, which should catalyze rapid earnings growth from 3Q22. Our outlook is based on the following: 

(1) Shipments of iPhone 14 are expected to be 20% greater than those of iPhone 13 last year (100mn units), indicating greater likelihood of earnings improvement for LG Innotek in 2H22.

(2) High-end iPhone models (iPhone Pro & Pro Max), from which LG Innotek generates most of its camera module sales, are expected to account for 60% of overall iPhone shipments.

(3) Cameras for the new iPhone reportedly require four times as many megapixels, indicating a 20% increase in sales price.  

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