[Click eStock] "Samsung Electro-Mechanics Passes Q2 Bottom... Growth Resumes from Q3"

[Asia Economy Reporter Song Hwajeong] Shinhan Investment Corp. maintained its 'Buy' rating and target price of 227,000 KRW for Samsung Electro-Mechanics, expecting growth to resume from the third quarter.

Shinhan Investment estimated that Samsung Electro-Mechanics' operating profit in the second quarter reached 300.5 billion KRW, a 192% increase compared to the same period last year, slightly surpassing market consensus. They forecast that after hitting the bottom in the second quarter, growth will resume from the third quarter. Researcher Park Hyungwoo of Shinhan Investment said, "The second quarter was a brief pause due to semiconductor procurement disruptions by manufacturers and smartphone production cuts," adding, "With improvements in semiconductor procurement and the effect of entering the peak season, Samsung Electronics and Apple are likely to increase smartphone production from the third quarter." He further stated, "Operating profit is expected to grow by 14% to 350.5 billion KRW in the third quarter, marking the resumption of growth."

Some concerns have been raised about demand in the second half of the year and inventory adjustments or order reductions by Chinese companies such as Oppo, Vivo, and Xiaomi. Regarding this, Researcher Park said, "Currently, adjustments in component orders from domestic suppliers to Chinese manufacturers are not as significant as feared."

The annual operating profit for this year is positive, expected to increase by 58% year-on-year to 1.3 trillion KRW. Park analyzed, "Considering the limited number of suppliers and the characteristics of the general-purpose component industry, multilayer ceramic capacitors (MLCC) can expect a gradual price increase trend," adding, "The supply shortage situation for packaging substrates is expanding from flip chip ball grid array (FCBGA) to flip chip chip scale package (FCCSP) and system-in-package (SiP). Samsung Electro-Mechanics is currently the only domestic supplier of FCBGA and a leading company with the highest market share in the global FCCSP industry."

Although new businesses such as communication components and automotive parts have not yet met growth expectations, the mid- to long-term direction is clear. Researcher Park explained, "Sales growth in communication and automotive components has been somewhat sluggish, lowering capital market expectations for new businesses," but added, "However, with 5G, electric vehicles, and autonomous driving, it is only a matter of growth speed; the mid- to long-term growth direction is clear."