[Click eStock] "LG Innotek Expected to See Earnings Growth for the First Time in Five Years on Strong iPhone Sales"

On September 22, iM Securities raised its target price for LG Innotek to 230,000 won, citing "the visible earnings growth in 2026 for the first time in five years, driven by strong iPhone sales and the adoption of a variable aperture camera, among other positive factors in its core business." The investment opinion remains 'Buy.'

Ko Uiyoung, a researcher at iM Securities, stated, "The initial response to the iPhone 17 series has been more positive than expected, with particularly strong demand for the base model." He added, "The introduction of a 120Hz refresh rate and the increase in base storage (from 128GB to 256GB) are the main drivers behind the strong sales." He explained, "Even at this point, it is possible to take a buy approach."

The adoption of a variable aperture in the iPhone camera is also a favorable factor. Over the past three years since 2022, upgrades to the iPhone's rear camera have focused on increasing the pixel count (from 12MP to 48MP), which led to higher image sensor prices and negatively impacted profitability. However, next year, the pixel count increase is expected to halt, and a variable aperture will be introduced to the main camera. Ko commented, "Since a new component will be added to the camera, this change could improve the value-added of assembly work for the first time in a while," and predicted, "The profitability of the optical solutions segment is likely to bottom out this year."

LG Innotek's market share among its major clients has entered a phase of stable decline. The aggressive pricing strategy of competitors is gradually losing its effect, and LG Innotek is seeking cost reduction and market share stability by relocating its production lines to Vietnam. In the mid- to long-term, it is expected that 70-80% of the company's total camera module production will be handled in Vietnam.

The substrate business (FB-BGA) is pursuing diversification of its customer base. Although entry into server-use products is progressing slower than planned, performance is expected to ramp up from 2026 due to the expansion of new products and additional supply to existing clients.

Accordingly, iM Securities forecasts operating profit for 2025 and 2026 at 561 billion won and 698 billion won, respectively, up 6.5% and 6.4% year-on-year.

For the third quarter of this year, the company expects sales of 5.4 trillion won and operating profit of 175.9 billion won (an operating margin of 3.3%), raising its previous forecasts by 3% and 12%, respectively. Ko noted, "The third quarter is traditionally a sell-in period for new products, so significant demand fluctuations will be limited." However, he also pointed out, "If the foreign exchange environment remains more favorable than expected and positive iPhone sales trends continue, there could be additional upside in fourth-quarter results."

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