[Click eStock] "Samsung Electro-Mechanics, Q3 Operating Profit Consensus Expected to Rise"

[Asia Economy Reporter Oh Ju-yeon] Hana Financial Investment forecasted on the 29th that Samsung Electro-Mechanics' operating profit for the third quarter of this year will exceed the recently upwardly revised consensus by 12%. It explained that all three core business divisions?Multilayer Ceramic Capacitor (MLCC), which is recovering in market conditions and improving its fundamentals; substrate solutions, with performance upgrades due to package substrate expansion; and module solutions, with additional 5G-related items and lens supply to North American clients?contributed to the upward revision of earnings. Accordingly, the investment opinion was maintained as 'Buy,' and the target price was raised from KRW 167,000 to KRW 178,000.

According to Hana Financial Investment, Samsung Electro-Mechanics' sales for the third quarter of this year are expected to be KRW 2.2381 trillion, and operating profit KRW 272.6 billion, representing increases of 1% and 44% respectively compared to the same period last year. Sales are in line with consensus, while operating profit exceeds the recently upwardly revised consensus of KRW 242.9 billion by more than 12%.

First, the sales and operating profit forecasts for the core business division, Component Solutions, were revised upward by 5% and 25%, respectively, compared to previous estimates.

Researcher Kim Rok-ho stated, "The supply volume was higher than initially expected due to increased smartphone shipments to major domestic clients, and the resulting operating profit leverage effect significantly improved profitability compared to the previous quarter. In substrate solutions, although volumes to North American clients were lower than usual, the division escaped losses and contributed to operating profit."

Researcher Kim also projected, "The third-quarter sales of Component Solutions will reach KRW 979.6 billion, approaching the record high of KRW 1.0268 trillion in the third quarter of 2018."

In the third quarter of 2018, MLCC experienced an unprecedented supply shortage, causing prices to rise by about 50% year-over-year, resulting in an operating profit margin of 38% and operating profit of KRW 393 billion. Compared to that, the estimated operating profit for this year's third quarter is KRW 188.6 billion, only about half of that period. Nevertheless, the third-quarter performance this year is emphasized as significant.

Researcher Kim explained, "The fact that the operating profit margin has approached 20% over nearly the past year without an increase in Blended Average Selling Price (Blended ASP) indicates that the fundamentals of MLCC have leveled up. Based on this, we are revising upward the operating profit forecasts for the fourth quarter and the full year 2021, with the possibility of Blended ASP rising in 2021 due to recovery in automotive demand."

He added, "The year 2021 is expected to be the year to attempt operating profits exceeding KRW 1 trillion again since 2018. Considering the fundamental level-up of MLCC and the balanced performance of the three business divisions, we believe there is a high possibility of setting new record highs."