LG Innotek ( KS)

Transcription

1 Company Report Apr 6, 215 LG Innotek (117 KS) With uncertainties priced in, time to shed light on positives Electronics/parts BUY (M) TP: W135, (M) Share price (won, Apr 3) 11,5 Paid-in capital (Wbn) 118 Market cap (Wbn) 2,615 BPS (won) 79,245 Net debt to equity (%) 41.6 Shares outstanding 23,667,17 Avg daily T/O (2M, Wbn) 2 Avg daily vol (2M, shrs) 189, week high (won) 15, 52-week low (won) 82,2 Foreign ownership (%) 12.1 Major shareholders (%) LG Electronics INC. & others 4.8 Stock performance (%) 1M 3M 12M Absolute 5.7 (.9) 6.8 Relative 3.5 (6.7) 4.1 Abs (US$) (won) (%) 16, 2 14, 18 12, , 12 8, 1 6, 8 4, 6 4 2, 2 Apr-13 Apr-14 Apr-15 LG Innotek(LHS) Rel. to KOSPI(RHS) 1Q15 operating profit likely reaches W65.9bn We estimate 1Q15 sales at W1.7tn (+18% YoY, -5% QoQ) and operating profit at W65.9bn (+5% YoY, +14% QoQ, OPM 4%). Favorable won-dollar rate conditions accompanied by higher-than-expected iphone 6 and iphone 6 Plus sales in 1Q15 again should be positive for LG Innotek. 215 consolidated operating profit to reach W349.5bn (+11% YoY, OPM 5%) We estimate 215 consolidated sales at W7tn (+1% YoY) and operating profit at W349.5bn (+11% YoY, OPM 5%), as: 1) pricing conditions for the camera module (CM) division are likely to be better than previously expected in 2H15; and 2) the LED division s depreciation costs are forecast to drop from W11.bn in 2H14 to W6.bn in 2H15, helping the firm turn around. Meanwhile, the substrate material division s earnings will likely weaken due to the growing share of in-cell touch panels and declining chipset demand at Company Q in North America. Reiterate BUY and target price of W135, We reiterate BUY and our target price of W135, LG Electronics (LGE) decision to apply in-cell touch panels to its new G4 model and SEC s use of the Exynos 742 in the Galaxy 6S should address uncertainties surrounding its substrate material division (ie, touch panels and semiconductor boards). We believe uncertainties are already priced in and that it is now time to focus on the CM business s positive momentum and a possible improvement in the firm s valuation driven by the strong electric component business. Quarterly earnings (Wbn) 1Q15E % YoY % QoQ Consens vs consens (%) Sales 1, , Operating profit Pre-tax profit Net profit TTB Op margin (%) %pt +.6 %pt %pt Net margin (%) %pt TTB %pt Note: TTB = turn to black, TTR = turn to red, RR = remain in red Forecasts and valuations (K-IFRS, consolidated) (Wbn) FY ends Dec 213A 214A 215E 216E Sales 6,212 6,466 7,1 7,531 Operating profit Net profit, CI % YoY P/E (x) P/B (x) EV/EBITDA (x) ROE (%) Note: Operating profit = gross profit SG&A expense, CI = controlling interest

2 LG Innotek (117 KS) LG Innotek: quarterly earnings, by division (Wbn) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15E 2Q15E 3Q15E 4Q15E Sales 15,59 15,211 15,955 15,44 14,588 15,429 16,493 18,15 17,194 17,444 18,271 LED 2,569 3,157 2,862 2,442 2,639 2,818 2,837 2,199 2,386 2,731 2,914 2,853 CM 6,411 5,574 6,195 7,5 5,863 5,896 6,325 9,376 8,185 7,86 8,298 8,757 Substrate material 4,11 4,18 4,439 3,485 3,58 4,276 4,919 4,218 3,93 3,995 4,123 3,612 Auto 1,99 1,13 1,97 1,16 1,254 1,35 1,321 1,444 1,59 1,679 1,757 1,761 General components 1,551 1,54 1,538 1,431 1,413 1,296 1,27 1,197 1,184 1,18 1,178 1,112 Sales growth (% YoY) LED CM Substrate material Auto General components Operating profit , ,88 1,11 LED CM Substrate material Auto General components OP growth (% YoY) LED CM Substrate material Auto General components Total OPM LED CM Substrate material Auto General components Profit breakdown LED CM Substrate material Auto General components Note: By division figures are estimates and other sales and revenues are omitted 2

3 Company Report <Reference> Forex rate sensitivity analysis, by key IT firm (Wbn) 1Q15 earnings estimates Samsung Semicon SK Hynix LG Display LG Innotek SEMCO Sales (Wbn) 11,189 4,716 7,94 1,64 1,853 Portion of dollar denominated sales 1% 1% 96% 8% 85% Operating expense (Wbn, COGS+SG&A) 8,47 3,238 6,61 1,57 1,85 Portion of FCY denominated sales 43% 44% 57% 68% 73% USD 37% 38% 55% 67% 72% JYP 6% 6% 2% 1% 1% OP (Wbn) 2,719 1, OPM 24% 31% 7% 4% 3% NP (Wbn) N/A 1, NPM N/A 25% 4% 2% 2% * Forex rate assumptions KRW/USD 1,8 1,8 1,8 1,8 1,8 JYP1/KRW Dollar exposure in sales ($mn) 1,361 4,367 6,36 1,215 1,458 Dollar exposures in operating expense ($mn) 3,385 1,329 3,948 1,136 1,44 JYP exposure in operating expense (Ymn) 53,495 2,45 13,915 1,653 2,28 OP sensitivity (Wbn) 3 won rise in KRW/USD (W1,8 W1,11) won drop in KRW/JYP (W95 W92) Total (wbn) OP change 14% 1% 23% 1% 18% Non-operating (refer to business report) 3 won rise in KRW/USD (W1,8 W1,11) won drop in KRW/JYP (W95 W92) 17 5 Non-operating total NP change % 15% 36% 28% 32% Note: Used earnings consensus for the analysis (excluding Samsung Semiconductor, for which our estimates are used) 3

4 LG Innotek (117 KS) LG Innotek (117 KS) pro forma financial statements (K-IFRS, consolidated) Statement of comprehensive income Statement of financial position FY ends Dec (Wbn) 213A 214A 215E 216E 217E FY ends Dec (Wbn) 213A 214A 215E 216E 217E Sales 6,212 6,466 7,1 7,531 8,285 Current assets 2,7 2,82 2,244 2,755 2,699 Cost of sales 5,522 5,63 6,184 6,42 7,42 Cash & cash equiv Gross profit ,13 1,243 Accts rec & other 1,166 1,264 1,324 1,59 1,656 SG&A Inventory Operating profit Non-current assets 2,574 2,347 2,17 1,999 1,91 EBITDA Tangible assets 2,15 1,898 1,753 1,69 1,53 Non-op profit/loss Investment in affiliate Forex gain/loss 2 5 Other non-current Net interest inc Total assets 4,581 4,429 4,414 4,755 4,6 Equity-meth gain/loss Current liabilities 1,629 1,647 1,67 1,759 1,984 Other Accts payable & other 861 1,4 1,27 1,117 1,342 Net prof before income tax ST financial liabilities Income tax Liquid LT liabilities Net profit from cont op Non-current liabilities 1,635 1, Net profit from discont op LT financial liabilities Net profit Debentures NP for controlling int Total liabilities 3,264 2,732 2,539 2,628 2,147 Total comprehensive inc Equity, controlling int 1,317 1,696 1,875 2,126 2,453 TCI for controlling int Paid-in capital Note: Operating profit calculation same as K-GAAP (sales - COGS - SG&A). Capital surplus 872 1,134 1,134 1,134 1,134 Retained earnings ,163 Equity, non-control int Total equity 1,317 1,696 1,875 2,126 2,453 Net debt 1,758 1, Total debt 2,16 1,46 1,244 1, Cash flow statement Valuation FY ends Dec (Wbn) 213A 214A 215E 216E 217E FY ends Dec 213A 214A 215E 216E 217E Operating cash flow EPS (won) 77 5,2 7,81 1,86 12,168 Net profit BPS (won) 65,295 71,689 79,241 89,852 13,65 Depreciation & amort EBITDA/shr (won) 32,992 37,81 37,438 4,859 38,479 Forex gain/loss -3-3 SPS (won) 37, ,59 3,13 318,224 35,47 Affiliate invest gain/loss DPS (won) Inc(dec) net working cap P/E (x) Other P/B (x) Investing cash flow EV/EBITDA (x) Investment 4 1 PSR (x) Inc in tangible assets Dec in tangible assets Key financial data Other FY ends Dec 213A 214A 215E 216E 217E Financing cash flow Sales (% YoY) Inc(dec) in ST fin liab Operating profit (%YoY) Inc(dec) in LT fin liab NP, CI (%YoY) Inc(dec) in equity Gross margin (%) Cash dividend Operating margin (%) Other NP, CI margin (%) Other cash flow EBITDA margin (%) Inc (dec) in cash & eq ROIC (%) Beginning cash & equiv ROA (%) Ending cash & equiv ROE (%) NOPLAT Debt-to-equity (%) FCF Net debt-to-equity (%) OP/financing cost (x) Note: EPS, BPS, P/E and P/B are based on controlling interest For valuation metrics such as P/E, historical figures are based on annual averages, estimates on current price For ROA or ROE, assets and equity are averages of end-of-year figures for given year and year prior Data to 21 based on K-GAAP and from 211, K-IFRS 4

5 Company Report PER Band chart PBR Band chart (W') 3, 25, 2, 15, 1, Price (adj) 8.8 x 53.7 x x x x (W') Price (adj).9 x 1.4 x 1.9 x 2.4 x 2.9 x 5, 5 Jan-8 Jan-11 Jan-14 Jan-17 Jan-8 Jan-11 Jan-14 Jan-17 LG Innotek (117 KS) ratings and target price history (won) 16, 14, Current Price Target Price 12, 1, 8, 6, 4, 2, Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Date Rating TP (won) BUY 135, BUY 135, BUY 135, BUY 135, BUY 128, BUY 128, BUY 128, BUY 128, Analyst changed HOLD 92, Disclosures & disclaimers This research report has been prepared for informational purposes only; it does not constitute an offer or a solicitation of an offer to buy or sell any securities or other financial instruments. The information and data contained in this report have been obtained from sources we consider reliable; however, we make no representation that the information provided in this report is accurate or complete, and it should not be relied on as such. The recipient of this report should use his/her independent judgment regarding the sale or purchase of any securities or financial instruments mentioned herein. We disclaim any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents. This report is for our clients only. It is copyrighted material and may not be reproduced, transmitted, quoted, or distributed in any manner without the prior written consent of Yuanta Securities Korea Co., Ltd. As of the publication date of this report, Yuanta Securities Korea Co., Ltd. does not own a stake in excess of 1%, nor does it have any interest whatsoever, in the subject company (ies). The material contained herein was not disclosed by Yuanta Securities Korea Co., Ltd. to any institutional investors or third parties prior to its publication. The analyst (s) of this report or the analyst (s) spouse does not have any financial interest in the securities of the subject company (ies) mentioned herein, nor financial interest of any nature related to the subject company (ies) (including without limitation, whether it consists of any option, right, warrant, future, long or short position), as of the publication date of this report. Analyst certification I/We, as the research analyst/analysts who prepared this research report, do hereby certify that the views expressed in this report accurately reflect my/our personal views about the subject securities discussed in this report. Stock and sector ratings Stock ratings include an Investment Rating (Strong Buy, Buy, Hold, Sell) based on the expected absolute return of a stock over the next 6-12 months. - Strong Buy: Expected to return 3% or more - Buy: Expected to return between 1% and 3% - Hold: Expected to return between -1 and +1% - Sell: Expected to return -1% or less Sector ratings suggest 6 to 12 - month forward investment weighting of a given sector compared to its market capitalization weighting. - Overweight: Investment weighting is higher than the market capitalization weighting - Neutral: Investment weighting is equal to the market capitalization weighting - Underweight: Investment weighting is lower than the market capitalization weighting 5

6 LG Innotek (117 KS) Yuanta Securities (Korea) International Network Seoul Head Office Yuanta Securities Building Euljiro 76 Jung-gu Seoul, Korea Tel: Research Center Yuanta Securities Building Euljiro 76 Jung-gu Seoul, Korea Tel: Hong Kong TONGYANG Securities Hong Kong Limited #217, 21F, Hutchison House, 1 Harcourt Road, Central, Hong Kong Tel: Manila TONGYANG Savings Bank Ground Floor Chatham House 116 Valero cor. V.A. Rufino streets, Salcedo Village, Makati City Metro Manila, Philippines Tel: Phnom Penh TONGYANG Securities (Cambodia) Plc. #138, 2nd Floor, Paragon Bldg, Norodom Blvd, Phnom Penh, Cambodia Tel: