The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. — Ed.
Widening metaverse client base expected to include Big Tech firms
We maintain BUY and our TP of KRW500,000 (12.3x 2022E P/E) on LG Innotek, as the company’s metaverse client base should widen, including Big Tech firms such as Apple, Meta and Microsoft. LG Innotek enjoys a dominant position in 3D imaging components (e.g., 3D sensing cameras, time of flight modules)—essential elements used in metaverse hardware devices. Therefore, we expect LG Innotek’s revenue to grow over the mid-to-long term in tandem with metaverse market growth.
MOU signed with Microsoft
On Mar 8, 2021, LG Innotek signed an MOU with Microsoft to develop and supply 3D sensing cameras and ToF modules to facilitate mixed reality on the metaverse. Notably, Microsoft’s recent acquisition of Activision Blizzard for KRW82tn (announced Jan 19, 2022), which creates the world’s third-largest gaming company following Tencent and Sony, signifies its entry into the B2C metaverse market via gaming content, adding to its existing metaverse focus (e.g., medical, industrial and defense). Also, we see Microsoft working to enhance 3D imaging functions on its upcoming metaverse hardware device HoloLens3. Thus, we believe LG Innotek stands to benefit.
Metaverse hardware demand to increase tenfold in just four years
According to the market research institute Counterpoint Research, demand for metaverse hardware devices (MR, XR headsets) should top 100mn units in 2025, increasing around tenfold (82% CAGR) vs. 11mn units in 2021. This should contribute to a demand surge for 3D sensing cameras and ToF modules. Of note, with Microsoft’s recent acquisition, global tech firms will be competing to get a head start in building metaverse platforms. This should lead to a surge in shipments of metaverse hardware devices. We see demand for metaverse hardware devices reaching 100-200mn units within the next three years.