[Asia Economy Reporter Oh Ju-yeon] Although Samsung Electro-Mechanics is expected to face inevitable earnings decline in the second quarter of this year, an analysis suggests that investment points should be viewed in line with the earnings recovery in the third quarter.
Samsung Electro-Mechanics recorded sales of 2.2 trillion KRW and operating profit of 164.6 billion KRW in the first quarter, exceeding consensus, driven by IT MLCC inventory accumulation demand and increased camera module sales due to the Galaxy S20 sell-in effect.
According to KB Securities on the 2nd, operating profit in the second quarter is estimated to be 100.2 billion KRW due to poor camera module performance caused by sluggish smartphone sales from strategic clients. However, a rebound in performance is expected in the third quarter due to increased inventory accumulation demand following the easing of COVID-19 and the entry into the seasonal peak, with operating profit projected at 195.1 billion KRW.
Researcher Kim Dong-won forecasted, "Samsung Electro-Mechanics' operating profit in 2020 is expected to decrease by 16.9% year-on-year to 626.8 billion KRW, with the profit ratio for the first and second halves estimated at 43% (264.8 billion KRW) and 57% (345.4 billion KRW), respectively, showing a pattern of lower profits in the first half and higher profits in the second half."
He added, "The decline in Samsung Electro-Mechanics' earnings is expected to be concentrated in the second quarter due to weak global smartphone demand caused by COVID-19. Future earnings and stock price catalysts for Samsung Electro-Mechanics will be price increases due to improved supply and demand of IT MLCCs, and performance improvements in the module and substrate business divisions."
There is also an analysis that the temporary slump in the second quarter is an 'opportunity.'
Researcher Park Kang-ho of Daishin Securities said, "The second quarter earnings decline is considered temporary, and we maintain a 'Buy' investment opinion and a target price of 155,000 KRW in line with the third quarter earnings recovery."
Researcher Park predicted, "In the third quarter, global IT finished product production expansion and consumption are expected to increase compared to the previous quarter, and MLCC demand is expected to rise significantly due to the full-scale launch of new models by Samsung Electronics' Galaxy Note20 and Galaxy Fold2, as well as Apple and Chinese companies."
He added, "The number of models applying 100-megapixel class camera modules is increasing, and entering the R/F PCB peak season (production of new models by strategic clients) is expected to increase sales across all businesses."
Accordingly, operating profit for the third quarter is estimated at 207.4 billion KRW.
Researcher Park diagnosed, "MLCC prices are expected to rise in the third quarter, mainly in IT sectors. After COVID-19, concentrated production of IT finished products and 5G infrastructure investment will drive strong demand for high-capacity, ultra-small MLCCs, while supply is limited, which may temporarily cause supply shortages."
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