[Click eStock] "Samsung Electro-Mechanics 1Q Operating Profit Expected at 330 Billion KRW... 102% Increase YoY"

1Q Average Exchange Rate Higher Than Expected... Samsung Electronics Smartphone Shipments Also Strong

[Asia Economy Reporter Minwoo Lee] Samsung Electro-Mechanics is expected to post strong earnings in the first quarter of this year. This is attributed to the average exchange rate in the first quarter rising more than expected and Samsung Electronics' smartphone shipments being better than anticipated.

On the 23rd, Hana Financial Investment forecasted that Samsung Electro-Mechanics would record sales of 2.4028 trillion KRW and an operating profit of 330 billion KRW in the first quarter. This represents a 13% increase in sales and a 102% increase in operating profit compared to the previous year. Researcher Kim Rok-ho of Hana Financial Investment said, "The average exchange rate in the first quarter was 1,114 KRW, exceeding the previous estimate of 1,080 KRW, and Samsung Electronics' smartphone shipments were also better than expected," adding, "The profitability of component solutions and substrate solutions is expected to slightly exceed previous forecasts, which could lead to an upward revision of the annual performance based on this."

With the profitability of multilayer ceramic capacitors (MLCC) and package substrates rising, steady performance improvement is expected in the first half of this year. Even when the MLCC market recovered in the third quarter of last year and strong earnings exceeded market expectations, the profitability of MLCC surpassed initial estimates. In the first quarter of this year, the increase in MLCC profit margins was confirmed again, and a similar trend is expected to continue.

Researcher Kim said, "Although the premise is that MLCC volume must increase in the second quarter, it is meaningful that MLCC shipments are increasing despite concerns that volumes may decrease due to production disruptions in smartphones and automobiles," adding, "Clients are likely to be reluctant to reduce order volumes as a means of securing inventory."

Regarding the inevitable decline in module solution earnings in the second quarter due to production disruptions at major smartphone clients, Kim assessed that it is not a significant issue. He explained, "MLCC and package substrates have the dual aspects of shipment volume decreases caused by production disruptions and inventory accumulation by clients who perceive this as a risk," and added, "Unless actual demand contracts, there is no need to interpret this negatively." Furthermore, since package substrates are understood to have less supply capacity than MLCC, the possibility of price increases cannot be ruled out.

Against this backdrop, Hana Financial Investment maintained a 'Buy' rating and a target price of 290,000 KRW for Samsung Electro-Mechanics. The closing price on the previous day was 193,000 KRW.