LG Innotek target price cut 40% as earnings outlook lowered... “A long-term perspective is needed”

[Financial News] Daol Investment & Securities expects LG Innotek’s weak performance to continue for the time being amid a slowdown in the smartphone market and deteriorating profitability. It maintained its “Buy” rating but cut its target price by 40%, from 1 million won to 600,000 won.
Kim Yeon-mi, a researcher at Daol Investment & Securities, said on the 28th, “LG Innotek posted an operating profit shock in the third quarter due to a sharp drop in the won-dollar exchange rate,” adding, “Profitability pressures will persist in the fourth quarter, and given the slowdown in the smartphone market next year as well, a downward revision to earnings is inevitable.”
LG Innotek posted revenue of 6.367 trillion won in the third quarter, up 18.6% from a year earlier, but operating profit fell 53.4% to just 94.8 billion won. Operating profit was 36.8% below the market consensus of 150.1 billion won. The deterioration in profitability was attributed to major customers’ demands for lower selling prices and the decline in the won-dollar exchange rate, among other factors.
Daol Investment & Securities forecast LG Innotek’s operating profit at 822.9 billion won this year and 1.0793 trillion won next year, respectively. These figures are 21.3% and 29.9% below its previous estimates, respectively. The launch of the standard iPhone 18 model next year is expected to partly ease the first-half gap in shipments, but the cost burden on customers from rising memory prices and weaker smartphone demand are expected to limit an improvement in performance.
However, the firm considers LG Innotek’s medium- to long-term growth potential intact. Expanded supply of flip-chip ball grid array (FC-BGA), a semiconductor substrate business, and a higher share of high-value-added products in its optical solutions business were cited as factors that could improve profitability. Researcher Kim said, “We believe the conditions for a future rebound in the share price are an improvement in the smartphone market and a full ramp-up in earnings contributions through FC-BGA expansion.”

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