[Edaily Reporter PARK MIN ] On the 29th, HYUNDAI MOTOR SECURITIES lowered its target price for LG Innotek(011070)from 1.03 million won to 570,000 won—a 44.7% reduction—citing a slowdown in growth within the optical solutions division (including camera modules, which account for a significant portion of the company’s total profits) compared to previous periods. This decision was based on the assessment that a discount was unavoidable when considering the company’s valuation relative to competitors specializing in semiconductor substrates. Based on the previous trading day’s closing price (368,000 won), the stock has upside potential of 54.9%.

Kim Jong-bae, an analyst at HYUNDAI MOTOR SECURITIES, stated in a report published today, “We calculated the target price by applying a target price-to-earnings ratio (Target PER) of 17.56x to the estimated earnings per share (EPS) of 32,282 won for 2027,” adding “We applied a 10% discount to the average price-to-earnings ratio (PER) for 2027 of domestic and international peers in the microcircuit insulating film (ABF) substrate sector—Unimicron, AT&S, and DaeduckElectronics—as a conservative measure to account for the high profit volatility of the optical solutions business unit,” he said.

Analyst Kim noted, “Despite rising semiconductor chip prices (‘chipflation’), concerns over cost reductions (CR) for other components were offset by robust smartphone sales in North America; however, the fact that earnings remain highly volatile due to exogenous factors is clearly a drawback,” adding, “To overcome this, the profit contribution from semiconductor substrates—which are influenced by the AI cycle—needs to rise rapidly.”

LG Innotek’s consolidated revenue for the third quarter of this year rose 19% year-over-year to 6.37 trillion won, while operating profit fell 53% to 94.8 billion won (operating margin of 1.5%). Analyst Kim assessed, “While revenue growth exceeded market expectations due to the early recognition of sales in line with mass production schedules and favorable price negotiations with clients, a decline in profit margins was inevitable due to the high cost burden resulting from the sharp drop in the exchange rate.”

He also projected that the fourth-quarter performance would continue to show a pause in growth in the short term.

Analyst Kim stated, “On a consolidated basis, fourth-quarter revenue is expected to be 6.7 trillion won, down 12% year-over-year, while operating profit is projected to be 198.3 billion won, a 39% decrease (operating margin of 3.0%).” “While a clear improvement in profitability will be difficult in the immediate term due to the low won-dollar exchange rate and lingering inventory burdens from the previous quarter, robust demand in North America will support earnings even amid conditions similar to those in the third quarter,” he predicted.

HYUNDAI MOTOR SECURITIES identified the “package substrate business” as the key driver of a structural re-rating of LG Innotek’s corporate value. The firm assesses that growth in high-value-added substrates is essential to offset the earnings volatility of the camera module business, which is susceptible to external factors.

Analyst Kim explained, “It is worth noting that the business roadmap for advanced bonding film (ABF) substrates remains completely intact,” adding, “Following discussions with major clients, mass production of server-grade products is scheduled to begin in earnest next year, and preparations for the necessary factory expansion are proceeding smoothly.”

He continued, “Given that the global substrate market itself is currently experiencing a severe supply shortage (shortage), there should be no difficulty in achieving the company’s shipment targets,” and “Not only are shipments of Advanced Bonding Film (ABF) substrates increasing, but those of Radio Frequency System-in-Package (RF-SiP) and Flip-Chip Chip-Scale Package (FC-CSP) are also steadily rising, so the high profitability of the package substrate division will drive company-wide profit growth,” he analyzed.