The author is an analyst at NH Investment & Securities. He can be contacted at [email protected] — Ed.
In the future, XR and autonomous vehicles will replace televisions, PCs and smartphones as the main drivers of the global IT industry. Given its close relationship with its major North American customer, LGI seems well positioned to be the primary beneficiary of the coming new era of hardware. As a result, we view the company’s shares as offering significant upside potential.
Warrant premium given high sales exposure to client NA
While global smartphone demand is expected to recover in 2H22, we believe the market is heading towards a medium/long down cycle. Nevertheless, LG Innotek’s (LGI) main North American customer should benefit from relatively strong smartphone sales. With the customer also expected to become a major player in new markets for computing devices, including XR devices and autonomous vehicles, LGI, one of the main parts suppliers for the customer, is well positioned to take advantage of the new era. equipment.
Going forward, global smartphone demand growth is expected to gradually wane, showing a similar growth pattern to that of TV and PC demand. That said, the North American customer’s sales are expected to stand out from those of its competitors, thanks to strong customer loyalty, high popularity among young people and potential for further hardware upgrades.
LGI, as a camera module supplier for the North American customer, is expected to record solid profit growth despite the deteriorating market environment. Online, its stock price should differentiate itself from those of other companies in the sector.
Despite strong earnings and new business momentum, the company’s shares are trading near the bottom of its historical valuation range
From a medium/long term perspective, LGI should benefit from the dawn of a new hardware era focused on XR and autonomous vehicles. In particular, in addition to its existing customer, LGI supplies (or co-develops) its XR camera modules to other major North American IT giants, including Meta Platforms. Given that the importance of sensing is expected to grow for XR devices, we see the company as offering vast potential for future growth.
Going forward, we plan to regularly revise our earnings forecast for LGI upwards. Despite this bullish outlook, the company’s shares continue to trade near the lower end of its historical valuation range. In this context, we advise investors to continue to overweight the stock.