LG Innotek may see a reassessment of its corporate value if the growth of its semiconductor substrate business accelerates, supported by stable performance in optical solutions for the second half of the year. However, Hyundai Motor Securities has adjusted its valuation criteria, lowering the target price by 29% from the previous estimate.
On August 31, Kim Jong-bae, a researcher at Hyundai Motor Securities, maintained a 'Buy' rating on LG Innotek but reduced the target price from 1.45 million won to 1.03 million won.
The decrease in the target price was primarily influenced by changes in valuation criteria rather than a deterioration in performance outlook. The previous target price was based on an estimated earnings per share (EPS) of 44,302 won for 2026, applying an average price-to-earnings ratio (P/E) of 33 times for domestic FC-BGA companies. The new target price is based on an estimated EPS of 51,516 won for 2027, using a projected P/E of 20 times for global ABF substrate companies. Although the projected earnings have increased, the significant reduction in the multiple applied has led to a lower final target price, indicating a deterioration in the industry's own valuation.
Kim noted that unlike in the past, LG Innotek is not solely focused on growth in camera modules. He highlighted that the package solution business, including FC-BGA, is expected to emerge as a key area influencing the company's long-term value and stock performance.
For the optical solutions business in the second half of the year, key variables include price increases due to rising component costs ahead of new model launches by clients, changes in product composition centered on foldable and pro models, and exchange rates.
However, the increasing share of premium products is expected to benefit LG Innotek. The variable aperture lenses used in higher-end models have a higher average selling price (ASP) than existing products, and the technical complexity of assembly and alignment may enhance LG Innotek's market share.
Kim assessed, "Despite a decrease in overall volume and external uncertainties, the product launch strategy centered on clients' higher-end lineups is structurally advantageous for LG Innotek in terms of product mix."
In the semiconductor substrate business, the growth potential of FC-BGA is highlighted as a key investment point. LG Innotek is preparing to supply global clients, with expectations that its business structure, which has focused on PC applications, will expand to include server applications starting next year.
Hyundai Motor Securities forecasts that supply of server network and switch products will begin by the end of the first quarter of next year, and after securing references, the company aims to expand its supply range to include server CPU products by 2028.
* This article has been translated by AI.
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