KB Securities on the 26th said LG Innotek's AI semiconductor substrate business is entering a full-fledged growth trajectory, making a medium- to long-term revaluation of its corporate value likely. It maintained a "Buy" rating and a target price of 2 million won.
Kim Dong-Won, head of research at KB Securities, said, "The application scope of optical solutions is expanding from a focus on smartphones to future industries such as aerospace and Humanoid Robot, and in the AI Semiconductor substrate business, U.S. big tech corporations are offering favorable business terms such as advance payments, support for facility investment, and long-term supply contracts."
In particular, it said the AI Semiconductor substrate (FC-BGA) business will become a key pillar driving earnings growth going forward. KB Securities estimated that LG Innotek's server flip chip ball grid array (FC-BGA) revenue will grow from about 140 billion won this year to 1.1 trillion won in 2028 and 2.3 trillion won in 2030. That would be about eight times in two years and about 16 times in four years.
Kim said, "The high growth potential of the AI substrate business is a key factor that greatly enhances medium- to long-term earnings visibility," adding, "With continued investment support and long-term contracts from U.S. big tech corporations, the growth foundation is strengthening."
KB Securities also expected LG Innotek to post results exceeding market expectations for two consecutive quarters. It estimated second-quarter operating profit at 202.8 billion won, up 1,680% from a year earlier and 33% above the market consensus. It said another earnings surprise is possible following the first quarter.
It said the earnings improvement will become even more pronounced in the second half. It expected second-half operating profit of 806.6 billion won, the highest since 2021. That is because the utilization rate at the AI Semiconductor substrate plant is near 100% while selling prices are rising, and profitability in optical solutions is also expected to improve on new-product effects.
Kim said, "With AI substrate supply shortages continuing, selling prices are rising, and the selling prices of new optical solutions products will also be much higher than last year," adding, "In the second half, record-high results will be achievable."
KB Securities also assessed that LG Innotek's share price is highly likely to move in tandem with the semiconductor sector going forward. It expected demand for high-performance substrates to increase with Nvidia's next-generation AI platform and expanded investment in data centers, and that new supply opportunities will grow in satellite communications, including Amazon's Project Kuiper and SpaceX's Starlink.
Kim said, "The AI substrate business has the characteristic of moving in step with the memory semiconductor cycle," adding, "If share-price synchronization with the semiconductor sector becomes full-fledged going forward, LG Innotek is highly likely to be re-rated as a growth stock, meaning the earnings surprise is just at the beginning stage."