KB Securities said on the 19th that LG Innotek's substrate business is shifting to a long-term supply agreement (LTA) structure similar to semiconductors, and analyzed that a valuation reassessment is needed.
It kept its "buy (BUY)" rating while raising the target price to 1.2 million won from 950,000 won. LG Innotek's previous trading day closing price was 760,000 won, implying 26% upside.
Kim Dong-Won, head of research at KB Securities, said, "Multiple big tech clients are proposing binding long-term supply contracts for LG Innotek's substrate business, including large advance payments and penalty clauses similar to memory semiconductor contract structures, along with support for facility investment," adding, "This will reduce future earnings volatility, enhance earnings visibility, and act as a catalyst for a valuation re-rating."
Accordingly, KB Securities raised its operating profit estimates for LG Innotek to 1.2 trillion won for 2026 and 1.5 trillion won for 2027. It also lifted its net profit forecasts for the same period to 884.4 billion won and 1.2 trillion won, respectively.
It particularly focused on the potential for profitability improvement in the package solution segment, which is part of the substrate business. As the share of high value-added products increases among artificial intelligence (AI) data center clients, operating profit contribution is expected to rise rapidly. While the package solution segment currently accounts for about 8% of revenue, its operating profit contribution is forecast to expand to 11% in 2024, 19% in 2025, 21% in 2026, and 30% in 2027.
It also emphasized that the company remains undervalued compared with global substrate players. Kim said, "For leading global substrate companies, the average 2026 price-earnings ratio (PER) is 59 times, the price-to-book ratio (PBR) is 10 times, and the average market capitalization reaches 40 trillion won," adding, "By contrast, LG Innotek is trading at 20 times PER and 2.8 times PBR on a 2026 basis, representing discounts of 66% and 71%, respectively."
He added, "Even so, we calculated the target price by applying only half of the average global peers' valuation."
KB Securities also predicted that growth in the physical AI market beyond AI will become a growth driver for LG Innotek. Kim said, "From 2027, six new clients—including North American cloud service providers and GPU companies—are expected to join the substrate business client base, which had previously centered on Intel," adding, "Customers for vision-sensing modules for humanoid robots are also expected to expand to the three major U.S. humanoid companies, including Boston Dynamics and Figure AI."