[Click eStock] "Samsung Electro-Mechanics' 3Q Surprise Earnings, Operating Profit Expected to Surpass 1 Trillion Won Next Year"

Increase in MLCC Sales and Effective Restructuring of Low-Profit Businesses
Possibility of Record-Breaking Performance in 2021

[Asia Economy Reporter Minwoo Lee] Samsung Electro-Mechanics posted a 'surprise performance' in the third quarter of this year, exceeding market consensus. The upward trend is expected to continue, with operating profit forecasted to surpass 1 trillion KRW next year, setting a new record high.

On the 27th, Daishin Securities analyzed Samsung Electro-Mechanics accordingly. Earlier, Samsung Electro-Mechanics announced preliminary results for the third quarter of this year, with consolidated sales of 2.288 trillion KRW and operating profit of 302 billion KRW, exceeding the same period last year by 3.3% and 60%, respectively. In particular, operating profit rose 215% compared to the previous quarter, far surpassing the consensus of 256.1 billion KRW. This was attributed to a 16% increase in multilayer ceramic capacitor (MLCC) sales compared to the previous quarter, while maintaining a utilization rate above 90%. Additionally, increased sales in semiconductor printed circuit boards (PCBs) for mobile and server applications, as well as the camera module segment entering peak season due to Galaxy Note20 supply, contributed to the strong performance.

The upward trend is expected to continue in 2021. Daishin Securities forecasts Samsung Electro-Mechanics to record an operating profit of 1.0619 trillion KRW next year, surpassing the previous record high operating profit of 1.0181 trillion KRW in 2018. Kangho Park, a researcher at Daishin Securities, stated, "MLCC is expected to continue growing as the usage per smartphone increases with the expansion of 5G phones, and TVs and tablets benefit from the work-from-home environment caused by COVID-19. The Tianjin plant in China has started operations producing IT MLCCs, and the proportion of automotive electronics for autonomous driving and electric vehicles is also expanding, improving profitability."

Furthermore, the camera module segment is expected to see an increase in average selling price (ASP) as it enters the premium segment of the Galaxy A series and the application of folded cameras increases. Semiconductor PCBs are also expected to maintain high profitability due to growth in both non-memory (FC BGA) and memory sectors. Additionally, with the expansion of the 28 GHz band 5G phone market in 2021, new sales are expected from additional investments in antenna-in-package (AIP), a new component.

Against this backdrop, Daishin Securities maintained Samsung Electro-Mechanics as the 'top pick' in the electrical and electronics sector. The investment opinion 'buy' and target price of 185,000 KRW were also maintained. The closing price the previous day was 139,500 KRW. Researcher Park explained, "With the increase in MLCC sales and restructuring of low-profit businesses, the outlook for profitability in 2021 is becoming more optimistic. As profits are revised upward in 2021, the current valuation burden will be alleviated."