The author is an analyst of NH Investment & Securities. He can be reached at [email protected] — Ed.
Defying weak seasonality, we expect LGI to register an earnings surprise for 2Q22 on its North American client’s market share expansion and robust sales of high-end smartphones, and on earnings improvement at the automotive electronics division. Margin growth is to maximize in 2H22 alongside higher shipments to the North American customer.
To deliver earnings surprise on North American client’s product mix improvement and market share expansion
We expect LG Innotek (LGI) to register an earnings surprise in 2Q22, far exceeding consensus. Despite off-seasonality (2Q), the company’s 2Q22 sales are looking on a par with those in 3Q21. Forex effects alone cannot account for the expected robust sales. We believe that LGI is benefiting from its client’s rapidly expanding market share and improved product mix. We anticipate further earnings improvement in 2H22.
We estimate that LGI’s 2Q22 sales and OP will top consensus by 16.1% and 20.4%, respectively. Considering a recent rise in the dollar/won rate, there is a high possibility of further profit expansion going forward.
We see the main reasons behind this likely strong performance as being: 1) a relatively high price for camera modules, with ASP proving higher than expected thanks to rising sales of high-end smartphones with rear 3D sensing at LGI’s North American customer; 2) ongoing market share expansion at the customer; and 3) likely higher sales and margins at LGI’s automotive electronics business in response to easing of auto chip supply shortage.
To maximize margin growth on peak seasonality in 2H22
It is positive that LGI will likely record an earnings surprise for 2Q22 in defiance of both recent sluggish smartphone demand and weak seasonality. Once the company enters peak seasonality in 2H22, the impacts of product mix improvement and market share expansion at its main client are primed to maximize, in turn leading to stronger-than-currently-expected profit growth.
In addition to camera module earnings improvement, we expect LGI’s 2Q22 results to show improved earnings for its automotive electronics business, which has been in the red. With semiconductor supply shortage woes likely to ease further in 2H22, earnings at the business should show a turnaround in 2H22. Over the mid/long term, overall earnings growth should sustain with the help of supply of camera/Lidar modules for use in autonomous vehicles.
Tags: #Innotek #Deliver #2Q22 #Earnings #Surprise