Meritz Securities said on the 20th that LG Innotek's optical solution and package solution divisions are both expected to grow this year. The firm kept its investment rating at Buy and raised its target price to 430,000 won from 360,000 won. LG Innotek's previous trading day closing price was 394,000 won.
Yang Seung-su, an analyst at Meritz Securities, said, "The optical solution division is expected to continue a steady performance trend, backed by the customer's aggressive shipment strategy and the effect of newly adopting a variable aperture."
He added, "In the package solution division, both the radio frequency system-in-package (RF-SiP) and bismaleimide triazine (BT) substrates are maintaining high utilization based on increased end demand, and profit-and-loss improvement is expected to begin in earnest as the flip-chip ball grid array (FC-BGA) business stabilizes."
Specifically, operating profit for the optical solution division this year and next year is forecast to grow 39.2% and 9.4%, respectively, from a year earlier. The report said high growth is expected this year as the low base effect combines with the customer's aggressive shipment strategy, a rise in average selling price (ASP) driven by the introduction of the variable aperture, and an expanded share within iPhone.
In 2027, it projected that the lineup will expand from four models this year to seven with the re-release of the standard and Air models and the launch of a new 20th anniversary model, sustaining the growth in results.
Yang said, "There is a high possibility that the standard and Air models will be released simultaneously in the first half, which used to be the off-season, and a structural change easing seasonality is expected," adding, "The variable aperture to be adopted for the first time this year is expected to serve as an additional driver of ASP gains along with performance improvements through an increase in blades and structural upgrades."
For the package solution division, the contribution to companywide operating profit is expected to expand gradually from 19% in 2025 to 23% in 2026 and 29% in 2027. The analysis said it should be able to maintain higher profitability than other substrate makers, helped by increased shipments of the relatively higher-margin RF-SiP.
In addition, it explained that FC-BGA, which had long posted large losses and acted as downward pressure on the division's results, is judged to shift into a key driver of profit improvement going forward.
In particular, based on securing new customers for server central processing units (CPUs), FC-BGA for Autonomous Driving, and artificial intelligence (AI) network applications, it said sales in 2026 and 2027 could grow sharply by 200% and 86.7%, respectively, from a year earlier.