Handset/IT Parts Industry: Asian Marketing Review – BusinessKorea

The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. — Ed.

Asian investors are keenly focused on the degree of smartphone shipment slowdown, the timing of industry recovery, and the future direction of the XR market. In addition to offering our opinions on the recovery of the handset industry in Greater China and the likelihood of full-fledged improvement in the global handset industry in September, we highlight the possibility of XR market growth.

Asian investors interested in extent of smartphone shipment slowdown and timing of recovery

Last week, we conducted analyst marketing for Asian (Singapore/Malaysia) investors. Overall, investors were concerned over slowing global smartphone set demand, including at Samsung Electronics (SEC), and worried about the timing of recovery. Meanwhile, agreement was largely reached on both the iPhone market share expansion trend and the market growth potential of extended reality (XR) devices and foldable smartphones.

Investors were most interested in the following points related to the handset industry: 1) the extent of the recent slowdown in smartphone shipments at SEC and Greater China companies; 2) the timing of global smartphone shipment recovery; and 3) the timing of major XR model launches and the necessary conditions for the XR industry to expand into the mass market.

In terms of individual stocks, interest was strong for plays in the Apple value chain, including LG Innotek, BH Flex, and Innox Advanced Materials, an OLED materials maker. In particular, LG Innotek’s recent expansion of market share within its key client and the growth potential of XR and autonomous vehicles were well received.

Smartphone shipment recovery to arrive in September; mid/long-term foldable and XR growth potential attractive

Regarding shipments, we put forth that: 1) SEC’s 2Q22 shipments will fall 15% to 61mn units; 2) Greater China companies are passing a trough on solid shipments in May and June; and 3) shipments will rebound in earnest in September. However, it remains difficult to forecast the strength of year-end demand.

Regarding shipments of the iPhone 14 series (to be released in 2H22), there are concerns over a slowdown in demand, but sales of the high-end Pro series should arrive strong thanks to consumption polarization and hardware changes.

There is also an opinion that the foldable smartphone and XR markets will take the lead in the overall hardware market as the smartphone market slows over the mid/long term. In particular, in the case of XR devices, Apple’s product launch should drive market expansion. We note the possibility of such a product release at the end of this year at the earliest or 1H23 at the latest.

Prefer stocks with low valuations and growth potential

As recommended stocks, we highlight LG Innotek, SEMCO, BH Flex, and Innox Advanced Materials. Investors showed preference for stocks with earnings growth and low valuations.

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