"Margin calls are about to flood in." — LG Innotek retail investor
"We're all going to get wiped out." — LG Innotek retail investor
LG Innotek, once counted among Korea's so-called "emperor stocks" with a share price above 1 million won ($743), is in a steep decline. Shares that climbed above 1.8 million won earlier this year on expectations of record earnings and improved profitability have collapsed to the 500,000-won range — a drop of roughly 60 percent in just three months — leaving investors in an uproar.
On Monday, LG Innotek shares fell more than 5 percent from the previous session to close at 514,000 won. After surging through the first half of the year, the stock reversed sharply in June.
The stock shed 20.44 percent in the first week of June alone, then slid to the 740,000-won range in late July, the 650,000-won range in mid-August, and the 500,000-won range in September.
Analysts say the decline reflects a combination of factors: a broad valuation contraction across global semiconductor stocks, elevated expectations following the first-half rally, and concerns about component price cuts driven by rising memory chip prices.
LG Innotek posted second-quarter sales of 5.53 trillion won and operating profit of 245.8 billion won ($183 million). Operating profit surged 2,057 percent from a year earlier, beating the market consensus of around 180 billion won by more than 30 percent in what analysts called an earnings surprise.
The scale of LG Innotek's decline has far outpaced that of Samsung Electronics and SK hynix, inflicting heavy losses on shareholders. A significant number of investors are believed to be stuck holding shares purchased in the 1-million-won range.
Despite the strong earnings, some brokerages have begun cutting their price targets. NH Investment & Securities recently lowered its target for LG Innotek from 1.2 million won to 1 million won — a reduction of 16.7 percent — citing a broad valuation decline across global IT components. The brokerage pointed to concerns about smartphone component price cuts stemming from rising memory chip prices as a key driver of the stock's recent weakness.
"We adjusted the target to reflect the recent decline in peer-group multiples," said Hwang Ji-hyeon, an analyst at NH Investment & Securities. "Given solid earnings growth and a valuation already below the sector average for substrates, the investment case remains compelling."
Hyundai Motor Securities also cut its target, lowering it 29 percent from 1.45 million won to 1.03 million won.
Some analysts, however, see the selloff as a buying opportunity. "The recent share price decline is a chance to add exposure," said Jo Dae-hyeong, an analyst at DS Investment & Securities. "We expect investment appeal to rise as earnings hold up better than feared and orders for high-value substrates begin to ramp up in earnest." Jo set a price target of 1.3 million won.
park@heraldcorp.com
