Yuanta Securities has lowered its target price for South Korea’s LG Innotek (011070.KS) from ₩1.4 million to ₩1.2 million (approximately $900), citing unavoidable profitability deterioration from the won-dollar exchange rate decline. The brokerage maintained its Buy rating. The previous trading day’s closing price was ₩644,000 (approximately $480).
Ko Sun-young, an analyst at Yuanta Securities, stated that “a third-quarter earnings shock is inevitable due to unfavorable currency conditions, particularly in the Optical Solutions division.” However, she noted positively that “mid-to-long-term demand visibility is improving through long-term supply agreement (LTA) discussions with key customers, while Package Solutions is seeing full-scale product line expansion and customer diversification.”
Third-quarter estimates were presented at ₩6.2594 trillion (approximately $4.7 billion) in revenue and ₩78.7 billion (approximately $58.8 million) in operating profit. Revenue is expected to grow 16.6% year-over-year, but operating profit is projected to decline.
The FX Timing Gap Behind the Earnings Shock
The Optical Solutions division faces direct margin pressure from the won-dollar exchange rate decline. The mismatch between inventory produced during the first half’s high-exchange-rate period, raw material purchase timing, and key customers’ new model shipment schedules is negatively impacting profitability.
Ko assessed that the business fundamentals remain solid, with robust new model demand and rising average selling prices (ASP) as variable aperture features are incorporated into existing camera modules. She expects cost pressures to ease starting in Q4, when raw materials purchased during the weaker-won period begin flowing into production.
FC-BGA Anchors the Mid-to-Long-Term Growth Story
The Package Solutions division is expected to sustain its growth trajectory on the back of North American customers. Particular attention was drawn to product line expansion and customer diversification centered on flip-chip ball grid array (FC-BGA) technology.
As originally planned, the company is expected to enter the PC central processing unit (CPU) market in Q4, expand FC-BGA applications to server switches in 2027, and server CPUs in 2028.
Yuanta also viewed positively the ongoing discussions with major FC-BGA customers to sign long-term supply agreements averaging four to five years, aimed at addressing mid-to-long-term substrate demand. LG Innotek is proceeding with capacity expansion in Vietnam targeting mass production in 2028, and is also reviewing options to secure additional production lines by utilizing available space at its Gumi plant in South Korea.
Yuanta Securities explained that this target price reduction reflects short-term earnings concerns stemming from the external variable of exchange rates, not a negative assessment of the business structure itself. The decision to maintain the Buy rating is underpinned by the judgment that Package Solutions, led by FC-BGA, is firmly on a growth trajectory.
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