[Click eStock] "Samsung Electro-Mechanics, Smartphone Market Improvement... Profit Increase Expected"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Samsung Electro-Mechanics is expected to post solid earnings due to a recovery in the smartphone market in the second half of the year. Accordingly, on the 5th, Korea Investment & Securities maintained a buy rating and a target price of 175,000 KRW for Samsung Electro-Mechanics.

Samsung Electro-Mechanics' estimated sales for the third quarter are 2.3274 trillion KRW, with an operating profit of 260.7 billion KRW. Chulhee Cho, a researcher at Korea Investment & Securities, said, "Market estimates have been continuously revised upward since the second quarter earnings announcement, and the third quarter is expected to perform even better," adding, "In the second half, the smartphone industry, the largest demand sector, is recovering from COVID-19, driving profit growth."

Demand related to notebook PCs is also favorable. The operating profit of the component (MLCC, etc.) division in the third quarter is expected to be 178.9 billion KRW, an increase of 106.4% compared to the previous quarter and 121.3% compared to the same period last year. Volume is expected to increase by 20% compared to the previous quarter, and the blended ASP is expected to rise by 3% due to an increase in the proportion of premium products for smartphones.

The upward trend in operating profit is expected to continue until next year. Operating profit next year is expected to increase by 40.3% compared to the previous year, with strong short- and long-term earnings momentum. This is because the smartphone market, a common upstream industry for the module (camera module), component (MLCC, etc.), and institution (packaging, RF-PCB) divisions, has begun to improve. In the short term, recovery from COVID-19 is anticipated, and in the mid-to-long term, the introduction of 5G is expected to shorten the smartphone replacement cycle.

China already began full-scale investment in 5G infrastructure such as base stations last year, and this year Japan and the United States have started related investments. India is expected to introduce 5G equipment next year. Smartphone manufacturers such as Samsung, LG, and companies in the Chinese market are aggressively launching 5G smartphones, intensifying competition to capture market share.

Researcher Chulhee Cho explained, "Apple is also shortening consumers' smartphone replacement cycles by launching the 5G iPhone in October," and added, "Although smartphone shipments are expected to decrease by 11.3% this year compared to last year, they are expected to increase by 7% next year."