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Upbeat outlook

Volume estimates raised; lift TP by 20%

We lift our target price for LG Innotek to W300,000 (from W250,000), as we revised up our 2026 operating profit estimates across divisions (+2% for optical solutions, +4% for auto components, and +9% for substrates) and reduced the discount applied to the substrate unit’s target multiple (from 50% to 30%). Our upward revisions reflect higher sales volume guidance (from 91mn to 94mn units) from LG Innotek’s key North American customer, which is seeing strong sales on the back of new product designs and replacement demand. Additionally, by year-end, the FC-BGA substrate business is likely to see applications broaden from chipsets to CPUs, which should drive ASP gains (due to higher technical complexity). We also see volume growth gaining traction from next year, driven by the North American customer’s launch of a new foldables lineup.

3Q25 review: Favorable FX and solid sales

For 3Q25, LG Innotek posted revenue of W5.4tr (-6% YoY) and operating profit of W203.7bn (+56% YoY), with the latter beating the consensus by roughly 14%. The main drivers were favorable FX and strong initial sales of the North American customer’s new product lineup. In past years, third-quarter results typically reflected only seasonal build-up, but this time, the customer’s strong initial sell-through translated into additional shipment volumes. Based on preliminary data for the portion of September following the new lineup launch (covering 12 business days this year vs. 11 in Sep. 2024), shipment volumes to the customer jumped 58% YoY. Meanwhile, for the semiconductor substrate business, mobile demand was robust, and FC-BGA saw reduced losses and higher ASP ahead of broader adoption in CPUs.

4Q25 preview: Favorable seasonality and solid shipments

For 4Q25, we look for revenue of W7.4tr (+12% YoY) and operating profit of W318.8bn (+29% YoY; around 9% above the consensus), factoring in the North American customer’s new model shipment guidance upgrade and favorable FX. In automotive components, despite a slow recovery in downstream demand, margins are likely to remain elevated thanks to a strong product mix (lighting/telecom applications). In semiconductor substrates, mobile demand should remain strong, and further ASP improvement is expected as the adoption of FC-BGA in CPUs becomes more visible.

We forecast 2026 operating profit at W843.3bn (+28% YoY). The adoption of variable aperture camera technology should increase the complexity of module assembly, highlighting LG Innotek’s technological strength and supporting market share gains. Meanwhile, depreciation expenses are likely to decline on a higher Vietnam production mix and the end of a major capex cycle, improving operating leverage. All in all, favorable price, volume, and cost dynamics should support an earnings turnaround over the medium term.