KB Securities on the 5th said LG Innotek is expected to see earnings growth as a race to secure long-term production capacity unfolds in the artificial intelligence (AI) substrate market. It maintained its investment opinion at "Buy" and raised the target price by 25% to 2 million won from 1.6 million won. The previous session's closing price was 1,173,000 won.
KB Securities analyzed that in the current AI substrate market, major large U.S. clients are offering favorable terms such as supporting capital expenditures and long-term supply contracts. It assessed that this means client demand, unlike in the past, is expanding beyond short-term orders into a competition to secure long-term production capacity, similar to the memory semiconductor industry.
Kim Dong-Won, head of research at KB Securities, said, "LG Innotek's AI substrate capacity expansion is not a simple increase in production capacity but is highly likely to lead to full utilization immediately after the expansion," and noted, "It is a key factor in expanding the long-term earnings visibility of the Packaging Solution business."
KB Securities projected that LG Innotek's flip chip ball grid array (FC-BGA) sales, for which new capacity expansion is being pursued at the request of clients, will rise from about 140 billion won this year to over 2 trillion won in 2030. It estimated second-quarter operating profit this year at 178.7 billion won, up 1,469% from a year earlier.
Kim said, "Even in the second quarter, the biggest off-season for the substrate business, the utilization rate is at 100%, continuing to improve Packaging Solution results, and the optical solution business will also exceed market expectations thanks to strong mobile sales by a North American client."
Kim said multiple AI data center companies and the three memory semiconductor firms are strongly asking LG Innotek to make new investments in AI substrates and to expedite capacity expansions.
Kim said, "In building AI infrastructure, the most severe supply bottlenecks are in memory and substrates," and projected, "Given this supply shortage, over the next two years LG Innotek will need to execute more than 2 trillion won in new investments for AI substrates."
Kim added, "Investment in AI substrates is positive for LG Innotek's mid- to long-term results," noting, "Clients are easing expansion risks early through investment support and long-term supply contracts, and LG Innotek has a structure that enables early assurance of utilization and profitability through immediate full utilization and sell-outs as soon as AI substrate capacity is expanded."