Yuanta Securities Korea said the substrate business is emerging as a new growth pillar alongside the existing optics (camera module) business for LG Innotek, maintained a "buy (BUY)" rating, and raised its target price to 1.4 million won from 850,000 won. The previous session's closing price for LG Innotek was 1,095,000 won.
Ko Sun-young, a researcher at Yuanta Securities Korea, said, "In addition to optics, which had been the main player, the substrate business is establishing itself as a growth driver," and noted, "A single spotlight has become two."
Yuanta Securities Korea raised its operating profit estimates for LG Innotek for 2026 and 2027 by 3.5% and 15%, respectively, from previous projections. It cited a solid optics business and the full-scale ramp-up of capital expenditures (CapEx) for substrates as the key reasons for the upward revision.
LG Innotek recently formalized an investment of more than 1 trillion won to expand a new plant in Vietnam. The plant aims to be completed in the first half of 2027, with full-scale reflection in sales expected from the second half of the same year. The securities industry also expects discussions on additional facility investments to continue.
In particular, it highlighted the growth potential of the package substrate business. The radio frequency system-in-package (RF-SiP) is maintaining the No. 1 global market share while expanding its application areas, and the flip chip chip scale package (FC-CSP) is expected to benefit from broader adoption of low-power DRAM (LPDDR) and graphics DRAM (GDDR) in artificial intelligence (AI) servers. FC-BGA is also expanding its application range from PC chipsets to PC central processing units (CPU), and from 2027, supply for AI accelerators and servers is expected to be possible.
Ko said, "For FC-BGA, supply for AI accelerators and servers is expected from 2027," adding, "Discussions are also underway on supply in the form of long-term agreements (LTA) with multiple customers, and if they take shape, long-term profit visibility in the package division will improve."
The optics division, the existing core business, is also expected to remain on a solid trajectory. The explanation is that the main customer's strategy to expand market share is proving effective, with a confirmed increase in shipments in the global smartphone market.
Ko analyzed, "The main customer is steadily expanding its share in the global smartphone market and is showing differentiated demand trends that outperform the overall smartphone industry," adding, "Benefits from a favorable exchange-rate environment are also likely to continue for the time being."
Yuanta Securities Korea also changed the method for deriving its target price. It had applied the price-to-book ratio (PBR) method, given that earnings were linked to the North American customer's new product launch cycle, but shifted to a price-to-earnings ratio (PER) basis on the view that the package business has entered a structural growth phase.
Ko said, "The package division has entered a structural growth stage based on expanded long-term supply agreements with major customers and broader FC-BGA applications," adding, "If additional facility investments and the securing of AI server customer references are confirmed going forward, the valuation discount could also narrow."