[Click e-Stock] "LG Innotek Needs Profitability Improvement... Target Price Lowered"

On June 27, Shinhan Investment Corp. maintained its 'Buy' rating on LG Innotek, but lowered its target price by 5% from 210,000 won to 200,000 won, citing continued weak performance due to poor profitability and intensified supply chain competition.

LG Innotek's second-quarter results are expected to decrease significantly compared to the same period last year. Sales are projected at 3.8 trillion won (-17%), and operating profit at 48.1 billion won (-68%). The operating margin is expected to be 1.3%, down 2.0 percentage points from the same period last year. This figure is 36% lower than previous estimates.

The main reason for the downward revision in performance is the optical solutions division. Researchers Kangho Oh and Jibeom Seo explained, "The average selling price (ASP) of products has declined due to intensified supply chain competition that has continued since the second half of last year. In addition, the exchange rate, which was 1,452 won in the first quarter, fell to 1,400 won in the second quarter, putting further pressure on profitability." The seasonal off-peak period also appears to have contributed to the decline in performance.

However, the growth potential of non-optical businesses such as automotive electronics and substrates remains valid. They analyzed, "In the case of automotive electronics, the order backlog in 2024 increased significantly to 13.6 trillion won from 10.7 trillion won last year, and the substrate division is also expected to see both sales growth and profitability improvement." Substrate sales in 2025 are expected to increase by 10% year-on-year, with the operating margin rising by 4.5 percentage points to about 9.3%.

Although a rebound in performance is anticipated in the second half of the year due to new product launches by major clients, there is an assessment that the stock price may remain limited until tangible profitability improvement is confirmed. They forecast, "With risk factors such as intensified supply chain competition and sluggish IT demand persisting, the slope of the stock price rebound will be determined only if the contribution to performance from key business divisions such as substrates and automotive electronics expands."