Mirae Asset Securities logo

Earnings estimates revised up

2Q24 preview: OP to top consensus by 31%

For 2Q24, we expect LG Innotek to report operating profit of W106.4bn (+480% YoY; 31% above consensus), supported by: 1) solid iPhone sales in China; and 2) favorable FX effects. The firm’s key North American customer is seeing robust demand in Europe and the US as well as improving sales in China (likely supported by the early start of the 618 shopping festival). Meanwhile, we estimate the average USD/KRW rate in 2Q24 at 1,370, higher than our initial assumption of 1,330.

Shifting from concerns to expectations

We believe the iPhone 16 will see stronger demand than the iPhone 15, backed by: 1) the adoption of on-device AI features; and 2) replacement demand from iPhone 12/13 users. Initial concerns over the potential of Apple Intelligence to improve the user experience have evolved into positive expectations as more details have come to light. Siri already receives 1.5bn voice commands per day, and that number should grow as AI upgrades become available. The data accumulated from these interactions will likely then be used to provide more personalized services, improving user experience and eventually contributing to top-line growth. Until early this year, shipment forecasts for the iPhone 16 series called for a 10% decrease compared to previous models, but shipments are now expected to match those of the iPhone 15.

Compared to other iPhone generations, the iPhone 12 and 13 series posted higher sales in the 12 months following their releases (148mn and 165mn units, respectively). Given the current smartphone replacement cycle (43 months on average), we expect the iPhone 16 series to receive a boost from replacement demand. We also believe the iOS 18 update will help drive up the mix of premium (Pro/Pro Max) models. This bodes well for LG Innotek, which enjoys solid positioning in the supply chain for high-end iPhone models. In our view, the company’s robust track record will limit any market share losses arising from the emergence of new competitors.

Raise TP to W330,000 (from W280,000)

Reflecting higher expectations for the iPhone 16 and earnings growth, we raise our target price for LG Innotek to W330,000, which is based on the stock’s five-year average P/E of 9.4x and our EPS estimate of W34,913. Even after its recent strong run, LG Innotek is still trading at a modest valuation (12-month forward P/B of 1.1x). We are encouraged by: 1) the recovery in iPhone sales in China; 2) potential replacement demand from iPhone 12/13 users; and 3) potential ASP hikes resulting from camera specification upgrades.









**** Please see the attached files for details.