LG Innotek Co. stocks have been on a rising trend over the past three months and are trading at their highest-ever prices. However, there are mixed opinions on the outlook for shares of the South Korean firm, which supplies electronic parts to Apple.
Some Korean securities firms are raising their target share prices based on robust iPhone 13 sales and the components’ quality improvement. But other overseas securities firms see that the stock has almost peaked, saying that intensifying competition in the electronic parts industry is a risk to the share price.
KOREAN BROKERAGES EXPECT FURTHER INCREASES
The shares closed at 375,500 won ($314.5) on Jan. 20, up 1.08%. The LG affiliate's stock has spiked by 79% since last November, reaching a record high of 398,500 won on Jan. 14.
The sharp increase comes on the back of two main factors – strong sales of the iPhone13; and expectations that iPhones to be released in the second half of this year will have higher pixel-count cameras. The more pixels the cameras have, the higher LG Innotek’s component prices.
Market predictions that Apple will launch virtual reality (VR) and augmented reality (AR) headsets this year benefited LG Innotek stocks. The Korean company is one of few manufacturers producing high-performance cameras, which are necessary for the headsets. In addition, expectations that LG Innotek could provide electric cameras to Tesla have pushed up the stock price.
Korean securities firms have increased their share price targets for LG Innotek. On Jan. 20, Hi Investment & Securities Co. raised its target to 485,000 won, up 21% from its previous prediction. NH Investment & Securities Co. and KB Securities Co. each maintained their 500,000 won target price on the same day.
“Despite the sharp increase in the stock price, there is no reason to reduce holdings. LG Innotek’s products are still in strong demand with a competitive edge. The company’s price-earnings ratio is only 8.8 despite the stocks' high valuation,” said Koh Eui-young, an analyst at Hi Investment & Securities.
GLOBAL FIRMS SET LOWER TARGETS THAN CURRENT TRADING PRICES
On the other side, overseas securities firms have more conservative outlooks on the stock, predicting lower targets than the current LG Innotek trading price. Goldman Sachs increased its price target by 14% to 280,000 won on Thursday, while maintaining a neutral rating. It stated competition in the electronic component market could be even fiercer, which is a risky factor to LG Innotek.
UBS has recently set its target price as 250,000 won with a sell rating. Last November, Morgan Stanley put a 280,000 won target price on the shares. Based on the recent jump in the stock price, it has maintained a neutral rating.
Goldman Sachs stated the major clients of LG Innotek are diversifying suppliers, which may intensify competition in the triple camera and time of flight (ToF) sensor module sectors. The global IB said semiconductor chip supply shortages will weigh on the car parts business until the first half of this year. There is not much room for a further increase in return on equity (ROE) even though the company will perform well in the short term, Goldman Sachs added.
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