[Click eStock] "Samsung Electro-Mechanics, Competitiveness Expansion Should Be Considered Despite Potential Weakening in IT Device Demand"

[Asia Economy Reporter Lee Jung-yoon] Daishin Securities maintained a buy rating and a target price of 250,000 KRW for Samsung Electro-Mechanics on the 27th, stating that the recent stock price decline is excessive considering the mix effect of MLCC (Multilayer Ceramic Capacitors), increased sales of FC BGA (Flip-Chip Ball Grid Array), and the expansion of camera modules toward automotive electronics.

In the second quarter of this year, there was sluggish sales of IT devices and inventory adjustments by major customers. However, the estimated operating profit for Q2 is expected to be 357.7 billion KRW, a 0.1% decrease compared to the previous year, which is favorable compared to the consensus estimate of 366.4 billion KRW. The portfolio changes, which form the foundation for stable performance and valuation upgrades in the second half of the year, were positively evaluated. Sales are expected to increase by 7.1% year-on-year to 10.4 trillion KRW, and operating profit is expected to rise by 6% to 1.58 trillion KRW, making the pursuit of record-high performance valid.

Furthermore, FC BGA among semiconductor substrates is evaluated to have increasing global competitiveness. Recently, Samsung Electro-Mechanics produced and supplied FC BGA for servers to North American CPU customers. It is also achieving results in high-value-added areas by supplying for Apple’s M2 processor. Additionally, Samsung Electro-Mechanics plans to invest about 1.9 trillion KRW in next-generation substrates centered on FC BGA following the discontinuation of low-profit businesses. This is expected to shift the growth driver to FC BGA, expand the high-value-added proportion from PCs to servers and networks, and achieve high growth through increased global market share.

Camera modules are also expected to slightly exceed the Q2 consensus results. Moreover, with the start of full-scale supply to American electric vehicle companies in the second half, it is analyzed that this will offset the slowdown in smartphone growth.

MLCC is expected to pose a burden on this year’s performance due to the downward outlook for the IT device market, but it is judged to be limited. Kang-ho Park, a researcher at Daishin Securities, explained, "The global market is avoiding global market share competition while new growth demand is high, centered on ultra-small, high-capacity products due to the influence of AI, cloud, and 5G." He added, "At the same time, it is judged that maintaining a high level of profitability is possible through the advancement of autonomous driving stages and the expansion of production of electric vehicles, increasing the proportion of automotive and industrial applications."