LG Innotek (011070.KS), whose shares tumbled on concerns over a possible iPhone price increase by Apple, has been excessively undervalued relative to its actual corporate value, according to an analysis. With no changes yet to iPhone shipment plans, along with advances in camera modules and growth in package substrates for artificial intelligence (AI) chips, buying on dips remains a valid strategy, the analysis said.
iM Securities maintained its "Buy" rating on LG Innotek on Thursday and raised its target price by 10% to 1.1 million won from the previous 1 million won. Based on the closing price of 872,000 won on the 3rd of this month, the upside potential stands at 26.1%.
iM Securities assessed that LG Innotek's shares, having fallen 51% from their peak, have relinquished much of the growth expectations for the package substrate business and are now trading below fair value. It noted that while the possibility of an iPhone price increase — raised after Apple recently hiked prices for its MacBook and iPad — dampened investor sentiment, this is likely to remain only a short-term concern.
The brokerage also predicted that even if iPhone prices rise somewhat, the magnitude of the increase would be limited. It explained that since the iPhone is a core product accounting for about half of Apple's total revenue, a price increase large enough to undermine shipment volumes would not be easy. In fact, a supply chain review found that second-half iPhone production plans remain unchanged to date, and shipment forecasts through 2028 continue to hold a solid trend, it assessed.
Expectations for earnings improvement were also maintained. iM Securities forecast that as the new iPhone adopts a variable aperture, the difficulty of camera module assembly will rise and LG Innotek's added value will also expand. Accordingly, it projected the operating margin of the optical solutions business would improve from a trough of 2.6% last year to 4.4% this year and 4.5% next year.
Growth in the package substrate business driven by expanding AI data center investment was also presented as a key investment point. It explained that as demand for FC-BGA for AI accelerators, CPUs, and switches grows rapidly, opportunities for business expansion are opening up even for LG Innotek, a latecomer. The brokerage expected the company to invest more than 2 trillion won over the next two years to respond. It also forecast that the package business division's share of operating profit would expand from 19% last year to 39% by 2028.
iM Securities projected LG Innotek's second-quarter revenue at 5.026 trillion won and operating profit at 200.8 billion won. It raised its operating profit forecast by 38% from its previous estimate, a level that also exceeds the market consensus by 26%. Ko Ui-young, an analyst at iM Securities, noted, "The recent share price decline was largely driven by investor sentiment, but the fundamentals remain solid," adding, "With the second-quarter earnings announcement as a catalyst, there is a high possibility that earnings forecasts for the second half and beyond 2027 will be further raised."
