20160108-三星证券-Tech_OVERWEIGHT__CES_2016_review_12页_774kb

2016 Tech Sector Update Summary

Core Content

This report provides an analysis of the Consumer Electronics Show (CES) 2016, with a focus on Korean tech firms such as LG Electronics (LGE) and LG Innotek (LGI). The report evaluates the market trends, investment opportunities, and competitive landscape in the context of smart cars, IoT, drones, robots, and VR.

Main Views

• CES 2016 highlights a shift from traditional consumer electronics (like smartphones and TVs) to smart cars, IoT, drones, robots, and VR.
• The smart car industry is emerging as a new growth engine, emphasizing collaboration between carmakers and IT firms.
• Korean firms are not leading in platform leadership or mass market appeal, but they can still benefit from cooperative strategies and niche technologies.
• The investment outlook for the tech sector is OVERWEIGHT, indicating it is expected to outperform the market by 5% or more over the next 12 months.

Key Information

LG Electronics (066570 KS, KRW55,000)

• Target price: KRW75,000, representing a 36.4% increase.
• Strategic focus: Collaborations with General Motors and Volkswagen in smart car and IoT technologies.
• Investor sentiment: Despite unstable flagship businesses, the auto-related business is seen as a growth opportunity, leading to a BUY recommendation.
• Investment ideas: LGE's SmartThinQ platform and IoT-enabled devices (e.g., smart refrigerator) are key areas of interest.

LG Innotek (011070 KS, KRW89,200)

• Target price: KRW120,000, a 34.5% increase.
• Business strength: Produces camera modules, communications modules, and semiconductor chips.
• Investor sentiment: Maintained as a BUY, with expectations of earnings recovery in 1Q16.
• Investment ideas: Its automotive electronics and component manufacturing are viewed as attractive and competitive.

Smart Car Trends

• Collaboration is key, with examples including:
  • LGE & Volkswagen: IoT platform for BUDD-e concept car.
  • Amazon & Ford: Integration of SYNC and Echo for voice-controlled home appliances.
  • Microsoft & Volvo, Nissan: Azure and Alexa for infotainment and voice control.
  • Toyota & Ford: Development of SDL (Smart Device Link) for smartphone-car connectivity.
  • Nvidia: Drive PX2 for AI and autonomous driving.
  • Qualcomm: Snapdragon 820A and Halo wireless EV charging.
• Performance and reliability are becoming key differentiators, with size and energy efficiency taking a backseat.
• First-mover advantage is important, especially for new entrants in the self-driving car space.

IoT and New Segments

• IoT platform war is underway, with AllJoyn, Open Interconnect Consortium (OIC), and Thread as major players.
• Platform standardization is crucial for interoperability and network effects.
• Consumer demand for IoT devices is still limited, and business models are not yet mature.
• IoT growth is expected to boost home appliance replacement demand, benefiting SEC and LGE.

Drones, Robots, and VR

• Drones and robots are gaining traction, with Intel and Oculus as notable players.
• Intel's RealSense technology is being applied to drones and robots, and it acquired Ascending Technologies.
• VR is a key theme, with Oculus Rift set to launch in March 2016.
• These technologies are experimental and not yet commercialized, but they offer long-term opportunities.

Investment Ideas

• LGI is a top pick due to its automotive electronics and resource allocation.
• Other firms to watch include MCNEX, Wisol, and Chips&Media for camera and communication modules.
• Namuga Multimedia Lab, a Korean partner of Intel, is expected to benefit from collaborations.
• IoT platform makers such as SEC and LGE may see increased demand from home appliance replacements.

Compliance and Disclaimer

• The analysts did not own any shares of the covered companies as of Jan 7, 2016.
• Samsung Securities holds less than 1% of each company's shares.
• The report is not an offer to buy or sell any securities.
• No guarantees are made regarding the accuracy or completeness of the information.
• Past performance does not indicate future results.

Conclusion

CES 2016 underscores a paradigm shift in the tech industry from smartphones and TVs to smart cars, IoT, drones, robots, and VR. While Korean firms face challenges in platform leadership and market appeal, they have opportunities in collaboration and component manufacturing. LGE and LGI are highlighted as top investment picks, with LGI particularly favored for its nimble resource allocation and automotive electronics. The tech sector is rated OVERWEIGHT, indicating strong growth potential.