Original source：BofA Global ResearchFirst published on Unhidea：Original source date：
Key takeaway
Bank of America expects LG Innotek’s profit to continue growing, but currency pressure on its Apple business and the small scale of its AI substrate business mean earnings growth over the next two years will be below its previous expectations and market consensus.
Why did revenue rise while profit fell in the third quarter?
In the third quarter of 2026, LG Innotek reported revenue of 6.367 trillion won, up 19% year on year; operating profit fell to 95 billion won, down 53% year on year and about 51% below the market consensus of 196 billion won.
Bank of America attributes the result primarily to the adverse exchange-rate impact of the won’s appreciation against the US dollar, as well as weaker-than-expected growth and margins in the substrate business. The substrate business’s third-quarter operating margin was about 7%, below the bank’s previous assumption of 12%.
The Apple business accounts for more than 80% of company revenue. Bank of America’s new analysis suggests that Apple does not provide sufficient compensation for the profit squeeze caused by won appreciation, affecting both iPhone camera modules and substrates related to radio frequency and antennas.
How much did Bank of America cut its future earnings forecasts?
Bank of America cut its earnings per share forecasts for 2027 and 2028 by about 40% each, to 32,487 won and 43,207 won, respectively. The revisions include revenue forecasts lowered by about 10%–20% and operating margin assumptions reduced by about 2 percentage points.
Following the cuts, the bank forecasts operating profit of 1.072 trillion won in 2027, up from its 2026 forecast of 838 billion won but 23% below market consensus; its 2028 forecast is 1.405 trillion won, 16% below consensus.
A near-term rebound is still expected: Bank of America forecasts fourth-quarter 2026 operating profit will recover to 202 billion won, above the third-quarter actual result but about half the market consensus of 400 billion won.
Why is it difficult for AI substrates to offset pressure on the Apple business for now?
Bank of America believes the company has limited exposure to AI data centers and that FC-BGA package substrate sales remain small, limiting room for improvements in the substrate business’s average selling prices and margins. Substrates for non-AI data-center uses are mainly aimed at IT products and may also be affected by memory chip shortages or weak demand.
The company is expanding an FC-BGA factory in Vietnam that primarily serves AI data-center chips. Bank of America expects construction and ramp-up to take about three years, with a meaningful earnings contribution only at the end of 2028; an unexpected increase in FC-BGA sales to major US technology companies could improve the outlook.
The capacity expansion also increases capital investment. Bank of America forecasts capital expenditure of 1.5 trillion won and 2 trillion won in 2027 and 2028, respectively, covered by operating cash flow in those periods. It calculates that free cash flow will fall from 478 billion won in 2026 to 331 billion won in 2027, before reaching 355 billion won in 2028.
Why were both the rating and price target lowered?
Bank of America downgraded the stock from Buy to Neutral and cut its price target from 1.25 million won to 420 thousand won. Alongside its lower earnings forecasts, the bank changed its valuation basis from the previous cycle-peak price-to-earnings multiple of 20 times to 11 times forecast earnings for 2027–2028, close to the historical average.
Bank of America still expects the company’s operating profit in 2027–2028 to be at least at a mid-cycle level. Based on its earnings forecasts, the share price cited in the report represents approximately 10 times average earnings for those two years, so the bank sees limited downside.
