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IT Parts/Electronics: Self-driving Brings Change to Camera Market

it-parts/electronics:-self-driving-brings-change-to-camera-market

The authors are analysts of Shinhan Investment Corp. They can be reached at hyungwou@shinhan.com and ym.ko@shinhan.com, respectively. — Ed.

Camera suppliers to benefit the most from growing self-driving market

LG Innotek is once again drawing investors’ attention with the news that the company is in negotiations with Tesla for a massive supply of automotive camera modules. We recommend focusing on the whole automotive camera industry as well as LG Innotek, which are set to grow sharply with the advent of fully/semi-autonomous vehicles.

The global camera parts market is dominated by Korean and Chinese companies. With US-China trade disputes on the rise, Korean vendors are more likely to secure supply deals from North American and European automakers as seen with other IT parts.

Smartphone camera market (KRW45tr) vs. automotive camera market (KRW27tr)

We see strong growth potential for the automotive camera industry for the following reasons.

First, ASP levels are higher for automotive cameras (KRW30,000-50,000 per unit) vs. smartphone cameras (KRW5,000-10,000 per unit).

Second, the number of cameras mounted on a vehicle is projected to increase to 10-15 units going forward vs. three to four cameras in smartphones.

Based on the above, the annual smartphone camera market is estimated to be worth about KRW45tr (1.4bn smartphones x 4 cameras x ASP of KRW8,000). In comparison, the annual market for automotive cameras is forecast to grow to roughly KRW27tr (90mn vehicles x 10 cameras x ASP of KRW30,000).

Cherry-picking based on sales, sales portion, and growth

Market focus should fall on camera parts companies as Tesla and Apple are reportedly in the process of organizing their EV supply chain. We believe companies supplying parts for smart/self-driving vehicles deserve higher valuations. They are currently trading at a PER of about 10x, similar to other IT parts makers, but should see a re-rating of shares based on strong growth potential. Domestic suppliers of automotive camera parts include LG Innotek, Sekonix, Mcnex, Samsung Electro-Mechanics, Partron, and OPTRON-TEC.

We recommend focusing on: 1) LG Innotek with the highest absolute sales of automotive camera parts at about KRW300bn among domestic peers; 2) Sekonix boasting the largest sales share (35%) of automotive camera parts, which should lead to sharp improvement in overall earnings; and 3) Partron, which is expected to see the strongest growth in automotive camera parts sales in 2022.

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