LG Innotek Jumps 109% in a Month to Record High Despite Kospi Slump

LG Innotek shares have extended their record run, soaring nearly 110% over the past month. The rally reflects expectations for a sharp earnings improvement as the semiconductor substrate market recovers on the back of the artificial intelligence boom. Brokerages say the stock remains undervalued and have raised their target prices across the board.

According to the Korea Exchange on May 19, LG Innotek closed 4.34% higher at 793,000 won. The stock rose as high as 829,000 won during the session, setting an all-time high. That stood in contrast to the Kospi’s 3.25% slide the same day. The shares have surged 109.23% over the past month.

Expectations for better earnings are underpinning the rally. LG Innotek generates about 84% of its revenue from camera modules supplied to Apple. Strong iPhone sales in North America and a strong dollar helped the company post solid first-quarter results. On a consolidated basis, first-quarter revenue rose 11% from a year earlier to 5.5348 trillion won, while operating profit jumped 136% to 295.3 billion won. Operating profit beat the market consensus, or the average estimate of securities firms, by 34.79%.

The recent surge, however, reflects more than strength in the optical solutions business that includes camera modules. Securities firms say growing expectations for system-in-package, or SiP, substrates have played a bigger role. As global big tech companies expand AI investment, shortages of package substrates are worsening, supporting both price increases and improved profitability.

The package solutions division, which includes substrates, accounts for only about 8% of total revenue. Even so, its contribution to operating profit is forecast to rise sharply from 19% last year to 21% this year and 30% next year. Analysts also say a series of long-term agreements with big tech customers is underpinning earnings stability. Some see the stock potentially following a path similar to the rallies in Samsung Electronics and SK Hynix.

“The explosive growth in demand is centered on AI data-center customers for large-area, high-layer-count, high-value-added substrates that sell for more than 50% above existing products,” Kim Dong-won, head of research at KB Securities, said. “Even now, in the second quarter, which is usually the biggest off-season for the substrate business, production-line utilization remains at 100%.”

Six brokerages that published reports on LG Innotek this month all raised their target prices, saying earnings growth will continue. KB Securities raised its target to 1.2 million won from 950,000 won. NH Investment & Securities lifted its target to 1 million won from 700,000 won. SK Securities increased its target to 1 million won from 850,000 won, while Daol Investment & Securities raised its target to 950,000 won from 680,000 won. All four targets were above the stock’s intraday record high on May 19.

“The SiP market is an oligopoly in which LG Innotek is one of the key suppliers, and any increase in customer output would deepen supply shortages,” Park Hyung-woo, an analyst at SK Securities, said. “Excluding FC-BGA, operating margins for packaging substrates could rise to well above 20% in the second half of this year.”

Demand for large-area, high-layer-count substrates is expanding rapidly, and discussions are under way on additional customer supply requests and investment support, Daol Investment & Securities analyst Kim Yeon-mi wrote. She said profit contributions from package solutions will begin to expand in earnest next year. Current mass-production volumes are still limited, but the technology gap is narrowing quickly. Reflecting that, she raised her estimate for package solutions operating profit from next year onward by 30% from her previous forecast to 382.9 billion won.

Ko Jung-sam, Hankyung.com reporter, jsk@hankyung.com