LG Innotek Co. (011070.KS): Earnings Review: 2Q26 above expectations, however expect limited margin expansion in 2H26; Neutral

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LG Innotek Co. (011070.KS): Earnings Review: 2Q26 above expectations, however expect limited margin expansion in 2H26; Neutral

Goldman Sachs LG Innotek Co. (011070.KS)

LGI’s package solution continued to see solid revenue growth on the back of rising

demand for high-end substrates and favorable pricing trends. With operating margin

improving to low-teens% level which was inline with our expectations, both revenue

and profit for the business exceeded our expectations. While we expect the strength

in high-value substrates to continue in the coming quarters, revenue growth for the

overall business may see some limited upside in the near-term given the already high

utilization rate for the business. As such, we also note that the company may see

increasing fixed cost burden especially from FC-BGA as it plans to invest a significant

amount of capex over the next few years. Our updated 3Q26E package solution

revenue is W509bn (+2% qoq and +16% yoy), with 13% operating margin (vs. 7%

OPM in 3Q25).

n Lower 3Q26E OP to W247bn: We lower 3Q26E OP estimate to W247bn (from

W306bn previously), where most of the delta comes from lower camera module

revenue and margin estimates.

Lower earnings estimates and TP to W860K; remain Neutral-rated

We lower our 2026E/2027E/2028E EPS estimates by 4%/8%/2% mainly reflecting lower

camera module ASP and lower mobility solution revenue/margin estimates. As we

refresh our target multiples (from 10.2x to 8.1x for Optics Solution, and from 15.1x to

16.0x for Package Solution) to reflect changes in peer valuation, our 2027E-2028E SOTP

based 12m TP is lowered to W860,000 (from W1,000,000 prior). While we appreciate

the increasing contribution from the substrate business, camera module continues to