[Click eStock] Changed Samsung Electro-Mechanics "Stock Price Drop is an Opportunity to Increase Weight"

[Asia Economy Reporter Lee Seon-ae] Daishin Securities advised on the 20th that the recent stock price decline of Samsung Electro-Mechanics should be seen as an opportunity to increase weighting. They maintained a buy rating and a target price of 250,000 KRW. This is based on earnings growth prospects around the Q3 earnings announcement.

Samsung Electro-Mechanics' Q3 2021 operating profit (consolidated) is expected to be 441.3 billion KRW, exceeding the consensus (417.7 billion KRW) and previous estimates (416.0 billion KRW). While there is a positive effect from the exchange rate increase (KRW-USD), it is estimated that the operating profit margin of the MLCC (Multi-Layer Ceramic Capacitor) business improved compared to Q2 due to the mix effect expansion. Smartphone manufacturers such as Samsung Electronics and Apple are expected to increase adoption of ultra-small high-capacity components due to premium model launches, expanded 5G share, and upgraded key functions.

Park Kang-ho, a researcher at Daishin Securities, emphasized, "Globally, the expansion of the PC market and larger TV sizes are increasing demand for high-capacity MLCCs. Compared to Japanese competitors, Samsung Electro-Mechanics is expected to gain relatively higher benefits, and a favorable operating environment is expected to continue in 2022."

In Q4, the discontinuation of the R/F business (estimated 2021 sales of 434.2 billion KRW, operating loss of 41.4 billion KRW) is expected to improve the operating profit margin in 2022. The total operating profit estimate of 1.58 trillion KRW for 2022 is expected to be revised upward. Additionally, an investment of about 1 trillion KRW in semiconductor substrates (focused on FC BGA) is expected to enhance competitiveness and improve profitability. Growth is also anticipated in mobile-oriented semiconductor substrates (FC CSP, AiP, SiP) due to the expanded share of 5G smartphones.

Growth in camera modules is also expected in 2022. Samsung Electro-Mechanics newly supplied high-resolution cameras for Samsung's budget models (Galaxy A series) in 2021, and an increase in market share and the mix effect in 2022 are expected to expand the proportion of high-resolution cameras, leading to stable profitability. The increased share of folded cameras and sales growth toward China are also considered additional factors for sales and profitability improvement in 2022.