Meritz Securities on the 25th said it expects LG Innotek's semiconductor substrate utilization rate to approach effectively 100% within this year. It raised its target price to 360,000 won from 340,000 won and kept a "buy" rating. LG Innotek's previous trading day closing price was 292,000 won.
For the first quarter of this year, LG Innotek's sales and operating profit on a consolidation basis are estimated at 5.3986 trillion won and 200.4 billion won. These represent increases of 8.3% and 60.2% from a year earlier, respectively. Operating profit is expected to exceed the market consensus of 170.7 billion won by 17.4%.
Yang Seung-su, an analyst at Meritz Securities, said, "Thanks to solid iPhone sales and a favorable foreign exchange effect, the profitability of the optical solution division will exceed market expectations," adding, "Even in the seasonally weak first quarter, the semiconductor substrate division is expected to maintain peak-season utilization, driven by increased iPhone-bound shipments and expanded sales to memory."
As semiconductor substrate utilization rises, an additional capacity expansion decision is expected to materialize within the first half of this year. Yang said, "In the mid to long term, the contribution of the substrate division to profit will begin in earnest."
Yang said, "I agree to some extent with the concerns raised about LG Innotek this year regarding strengthened cost reduction (CR) due to rising memory prices and the negative growth in mobile demand," but added, "Once the short-term burden eases, based on the expansion of key customers' lineups, mid- to long-term earnings growth will become larger."
He added, "Since valuation burden remains limited, the increased profit contribution from the substrate division and the rising revenue share from major North American humanoid companies could serve as new re-rating catalysts."