The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. — Ed.
Maintain BUY, trim target price to KRW350,000
We trim our target price by 2.8% to KRW350,000 from KRW360,000 on LGI to reflect downward revisions to 2023E earnings, but we maintain BUY given the stock’s upside potential (vs. last close). Shipments were sluggish in 4Q22 on production disruption at Foxconn, but we expect a partial recovery in 1Q23. That said, earnings should decline through 1H23 given (1) unfavorable FX rates, (2) dissipation of new product effects and (3) entry into low-demand seasonality. However, Optics Solution ASP should increase thanks to the North American strategic client’s change in camera form factor for its new smartphone (to launch in 2H23), increasing 2H23 earnings growth visibility.
1Q23 forecast: OP at KRW191.4bn (-48% YoY)
We forecast 1Q23 revenue/OP at KRW4.8tn (+22% YoY, -26% QoQ)/KRW191.4bn (-48% YoY, +13% QoQ). A faster-than-expected decline in KRW/USD (1,357 in 4Q22 vs. 1,233 in January; -9.1%) should partially offset ASP increases resulting from the strategic client’s camera upgrades (12M→48M). 4Q22 revenue and OP came in at KRW6.5tn and KRW170.0bn (-60% YoY, -62% QoQ), respectively, missing the market consensus because of production issues and one-off costs.
2023 OP forecast: Low 1H/high 2H
We forecast 2023 revenue/OP at KRW20.2tn (+3% YoY)/KRW1.28tn (+0.7% YoY). OP should exhibit a low 1H/high 2H pattern, or 26% in 1H23 (KRW332.9bn) and 74% in 2H23 (KRW947.3bn). In 1H23, earnings should decline YoY on lower shipments amid low-demand seasonality and unfavorable FX rates. In 2H23, however, earnings should climb YoY with ASP increases (camera upgrades). Concerns over earnings decline have been partially priced in, in our view (stock price down 30% from March peak). Thus, we believe the pace of earnings improvement should be key to determining stock performance.
