Daol Investment & Securities said on the 31st that LG Innotek still sits at the bottom of its valuation range when considering the growth pace of its package solution (substrates). It maintained a Buy rating and raised its target price to 385,000 won from 340,000 won. LG Innotek's previous trading day closing price was 308,000 won.
Kim Yeon-mi, an analyst at Daol Investment & Securities, said, "Substrates have entered an earnings leverage phase on the back of core business growth centered on RF system-in-package (RF-SiP) and flip-chip chip-scale package (FC-CSP), rising utilization of flip-chip ball grid array (FC-BGA), and easing expense burden," adding, "Optical solutions are expected to deliver solid earnings versus concerns, supported by a favorable exchange rate effect and stable shipment volumes."
For the first quarter of this year, LG Innotek's revenue is forecast at 5.5 trillion won and operating profit at 202.7 billion won. Revenue would be up 10% from a year earlier and operating profit up 62%. In particular, operating profit is seen topping the market consensus of 175 billion won.
Specifically, in the substrates segment, RF-SiP is structured so that LG Innotek's supply opportunities are expanding as the RF module specifications of a North American client are upgraded and LG Innotek can handle high-difficulty RF-SiP; beyond a simple volume increase, the company is improving its mix (product composition) toward high value-added products based on copper post (CU-Post).
FC-CSP is diversifying from the traditional focus on mobile application processors (AP) to high-performance memory, and the company is expected to secure additional memory clients within the year. For FC-BGA, which had been weak, the rise in utilization and completion of asset write-downs are easing depreciation pressures, and the year-over-year loss is projected to narrow significantly.
In the optical solutions segment, the North American client's production target is expected to be higher than anticipated, with aggressive production and pricing strategies likely to continue. Accordingly, shipment volumes are also expected to remain stable through the year.
An expansion of shipments centered on Pro and Pro Max models in the second half is expected to offset the gap from the absence of a standard model launch. In addition, the adoption of a variable aperture is expected to lift the average selling price (ASP), supporting a solid overall earnings trajectory.
For this year, LG Innotek's revenue is projected at 23.8 trillion won and operating profit at 963.2 billion won. Revenue and operating profit would be up 9% and 45%, respectively, from a year earlier.
Kim said, "Reflecting accelerating growth and profitability improvement in substrates, we raised our operating profit estimate for this year by 14% from the previous figure."