LG Innotek's Share Price Dip: A Buying Opportunity?

LG Innotek's (LGI) recent share price decline has sparked concerns about the shipment of a key client's new smartphone models and its future earnings. However, we anticipate robust shipments of these new handsets, which should bolster LGI's earnings. Given this outlook, we maintain a Buy rating on LGI's stock. The current dip in share price presents an attractive entry point, especially as the North American client enters a sales expansion cycle.

North American Client's New Models: A Bigger Market Impact

Market fears over LGI's second-quarter 2024 (2Q24) earnings and the subdued shipment of its North American client's new smartphone models may be overstated. Contrary to these concerns, the global supply chain for the client's new models has received orders comparable to those for previous models. We foresee further increases in orders as shipments for the new models surpass expectations.

Over the medium to long term, we predict that the client will widen its lead over competitors, becoming the world's largest smartphone company by 2025. This growth is expected to be driven by an expanded product lineup, including low/mid-end, slim, and foldable models enhanced with AI features, as well as flagship models with increasingly sophisticated AI capabilities.

Earnings Outlook: Strong Performance Ahead

LGI's 2Q24 operating profit (OP) of W151.7bn (+726.2% year-on-year) exceeded market consensus, dispelling fears of an earnings miss. For 3Q24, OP is projected at W290.5bn (+58.4% year-on-year), in line with market expectations. Full-fledged earnings growth is anticipated from 4Q24.