Kiwoom Securities reaffirmed its "Buy" rating and target price of KRW 1.1m on LG Innotek (KOSPI: 011070) on the 6th, even as it forecast third-quarter results well below market expectations. The brokerage's analyst, Kwon Min-gyu, judged that the shortfall reflects a transient currency effect rather than any deterioration in the company's underlying business.
Earnings outlook: a currency-driven miss
Kiwoom projects LG Innotek's revenue for the third quarter (July–September 2026) at KRW 5.86tn, up 9% year on year, but operating profit at just KRW 91.7bn — a 55% decline, implying an operating margin of roughly 2%. That figure would come in 36% below the market consensus of KRW 143.2bn.
The culprit is the won-dollar exchange rate. Raw materials purchased in the second quarter (April–June), when the won was relatively weak against the dollar, were used to produce goods shipped during the third quarter, when the won had strengthened sharply. Because raw materials account for around 85% of the cost of goods sold in LG Innotek's optical solutions division, the company is acutely sensitive to currency moves. The won hit a trough of KRW 1,335 per dollar during the quarter before recovering, and Kiwoom expects margins to normalise from the fourth quarter onwards.
Fundamentals hold firm
Despite the earnings shock, Kiwoom argues that the core business remains sound. In optical solutions — which supplies camera modules primarily to Apple — concerns about sluggish sales of the North American client's latest mobile handsets have begun to ease. Demand in China is recovering to levels comparable with the previous product cycle, and higher pixel counts and variable-aperture lenses continue to support average selling prices.
In the packaging solutions division, LG Innotek has successfully broken into the supply chain for FC-BGA substrates (a type of advanced printed circuit board using Ajinomoto Build-up Film) used in PC processors, and shipments for server and networking switch applications are expected to begin before the year is out.
A recovery trajectory
The annual numbers tell a more encouraging story. Kiwoom forecasts full-year 2026 revenue of KRW 24.66tn (+13% year on year) and operating profit of KRW 994.6bn (+50%), a sharp contrast to the 6% decline in operating profit expected for 2025. By 2027, revenue is projected to reach KRW 26.03tn, with operating profit climbing a further 42% to KRW 1.42tn. The operating margin is forecast to improve steadily from 3.0% in 2025 to 4.0% in 2026 and 5.4% in 2027.
Valuation near historical lows
LG Innotek's shares closed at KRW 574,000 on 2nd October, giving the company a market capitalisation of roughly KRW 13.58tn — a fall of 62.5% from its 52-week high of KRW 1.53m. On a forward price-to-earnings basis, the stock trades at 12 times projected 2027 earnings per share, broadly in line with the pre-ABF-boom three-year historical average of 11.6 times. Kiwoom views this as an attractive entry point, implying roughly 92% upside to its target price.
Risks remain
Kiwoom's optimism is not without caveats. If the won's recovery proves slower than anticipated, the fourth-quarter margin rebound could be delayed. Uncertainty persists around order volumes from the North American handset client, and the market has not entirely ruled out the possibility of order cuts. Negotiations to secure new customers for ABF substrates are described as "actively under way" — but no contracts have been confirmed.
Despite the year's steep correction from January's peak, LG Innotek's shares have returned 74.7% over the past six months, outperforming the broader KOSPI index by 30.6 percentage points. Foreign investors hold a 27.0% stake. Kiwoom believes the combination of robust demand for ABF substrates and growing CPU requirements driven by the spread of agentic artificial intelligence makes the current share price a compelling buying opportunity.