Eugene Investment & Securities forecasted on July 28 that LG Innotek will continue to see improved performance driven by growth in its optical solutions and semiconductor substrate businesses. However, reflecting the impact of lower valuations among peer companies, the firm adjusted its target price from 1,053,000 won to 900,000 won, a decrease of 14.5%. The investment rating remains 'buy.'
Lee Joo-hyung, a researcher at Eugene Investment & Securities, stated, "Thanks to the high profitability defense capability of the optical solutions division and the rapid growth of the package solutions division focused on flip-chip ball grid array (FC-BGA) and FC-CSP, we are raising our annual net profit estimate for 2027 from 941.1 billion won to 1.0639 trillion won, an increase of 13.1%. However, we have lowered the target price to reflect the reduced valuations of comparable companies such as Nanya PCB, Unimicron, and Kinsus."
LG Innotek's second-quarter results showed revenue of 5.5527 trillion won and operating profit of 245.8 billion won, marking increases of 40.5% and 2057%, respectively, compared to the same period last year, significantly exceeding market expectations.
The strong performance is attributed to robust smartphone demand from major North American clients, even during the seasonal off-peak period, along with improvements in product mix. Additionally, the expansion of FC-BGA supply and increased demand for high-value substrates contributed to the package solutions division's performance.
Looking ahead to the third quarter, growth is expected to continue, with projected revenue of 6.3019 trillion won and operating profit of 300.7 billion won, representing increases of 17.4% and 47.6%, respectively, year-on-year. The anticipated effects of new product launches from major North American clients, along with the adoption of variable aperture in flagship models and improvements in product mix, are expected to drive up the average selling price (ASP) of camera modules.
The package solutions business is presented as a long-term growth driver. LG Innotek's Vietnam subsidiary announced in June plans for equipment investment centered on FC-BGA, with expectations of over 2 trillion won in additional investments over the next 2-3 years. The funding is anticipated to come from advance payments by North American IT companies.
The researcher noted, "We understand that more than three IT companies based in North America are demanding volume guarantees through advance payments. The qualification testing for FC-BGA for new clients' PC central processing units (CPUs) is also progressing faster than previously expected, accelerating the business schedule."
He added, "Currently focused on PCs, the FC-BGA business is expected to enter the server market by the third quarter of next year. We project that FC-BGA sales will more than triple by 2027 compared to this year, and the operating profit of the package solutions division will increase by 168% in 2028 compared to 2026."
* This article has been translated by AI.
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