LG Innotek (011070.KS), whose shares have nearly tripled this year, is increasingly being viewed as a stock that could move in tandem with the broader semiconductor sector amid the chip industry's super cycle. Brokerages are raising their price targets, citing the expansion of AI data centers and the rising value of its semiconductor substrate business as key growth drivers.
KB Securities on Wednesday maintained its "buy" rating on LG Innotek and raised its target price to 1.2 million won from 950,000 won. In a report, KB Securities analyst Kim Dong-won said, "Multiple big tech customers are offering LG Innotek's substrate business large upfront payments similar to memory semiconductor contract structures, binding long-term supply agreements that include penalty clauses, and capital expenditure support." He added, "This is expected to reduce future earnings volatility and improve earnings visibility, serving as a powerful catalyst for a valuation re-rating."
Kim sees the potential for LG Innotek's share price to follow a trajectory similar to semiconductor names such as Samsung Electronics (005930.KS) and SK hynix (000660.KS). "In particular, long-term supply agreements (LTAs) running through 2030 represent a shift to an order-based production system comparable to the foundry business model, suggesting the same trajectory as the structural changes observed in the memory semiconductor industry," he said.
KB Securities raised its operating profit estimates for LG Innotek to 1.2 trillion won for this year and 1.5 trillion won for next year. "While the substrate business (package solutions) accounts for only about 8% of total revenue, its contribution to operating profit is expected to climb steeply to 21% this year and 30% next year," Kim said. The shift is being driven by surging demand from AI data center customers for high-value, large-format, high-layer-count substrates that command unit prices more than 50% higher than existing products.
"Even at this point in the second quarter, which is the peak off-season for the substrate business, production line utilization remains at 100%, running at full capacity," Kim said. "Considering the share price correlation with memory semiconductors, LG Innotek will demonstrate the greatest upside potential in terms of re-rating capacity going forward."
