"Profitability pressured by exchange rates" ... LG Innotek target price cut

[Financial News] Meritz Securities cut its target price for LG Innotek from KRW 1.2 million to KRW 1 million on the 21st, citing foreign-exchange effects. It maintained its “Buy” rating.
Meritz Securities projected LG Innotek's third-quarter revenue and operating profit at KRW 5.7003 trillion and KRW 150.1 billion, respectively. These figures represent reductions of 10.9% and 53.6%, respectively, from its previous estimates.
Yang Seungsoo, a researcher at Meritz Securities, said, "The camera module business has high earnings sensitivity to short-term exchange-rate fluctuations because of the time lag between raw-material purchases and shipments of finished products." He added, "As the recent strengthening of the won means that inventory purchased during a period of high exchange rates is being reflected in costs, while lower exchange rates are applied to shipment prices, pressure on profitability is expected to increase."
He continued, "Shipments for new models appear to have been slightly delayed due to some supply-chain issues, but there have been no significant changes in our share at the major customer or in the average selling price (ASP), and the ASP gains from adopting variable apertures remain valid." He added, "This earnings adjustment reflects a short-term impact from exchange rates and shipment delays rather than a structural weakening of competitiveness."
However, he said investors should focus on medium- to long-term growth rather than short-term earnings pressure. Yang noted, "The short-term earnings weakness caused by the sharp decline in exchange rates appears to have been largely reflected in the recent share-price decline." He added, "At the current share price, investors should focus less on short-term earnings and more on securing new customers for Ajinomoto Build-up Film (ABF) substrates and expanding production capacity (CAPA) over the medium to long term based on long-term supply contracts."
He further stated, "Given that the printed circuit board (PCB) business still has structural growth potential, securing new customers and clarifying expansion plans will serve as key catalysts for a valuation re-rating." He forecast, "The competitiveness and medium- to long-term growth potential of the PCB business, which drove the share-price gains in the first half of the year, will come back into focus and drive another rebound in the share price."

[email protected] Seo Min-ji Reporter