[Click eStock] "Samsung Electro-Mechanics to Fall Short of 3Q Earnings Estimates"... Target Price Down

[Asia Economy Reporter Lee Jung-yoon] Kiwoom Securities maintained a buy rating on Samsung Electro-Mechanics on the 16th, stating that its third-quarter earnings this year are expected to fall short of market expectations, while lowering the target price from the previous 240,000 KRW to 210,000 KRW.

Samsung Electro-Mechanics' operating profit for the third quarter of this year is forecasted to be 352.4 billion KRW, down 23% year-on-year, slightly below the market consensus estimate of 387.3 billion KRW.

In the economic slowdown phase, decreased demand for smartphones, PCs, and reduced IT infrastructure investment in servers and network equipment are negatively impacting the supply and demand of multilayer ceramic capacitors (MLCCs). In particular, the sluggish smartphone demand in China and prolonged inventory adjustments by customers are delaying the recovery of MLCCs. Recently, smartphone sales in China in July were 23.53 million units, a 10% decrease compared to the previous year.

However, as the excess inventory of MLCCs is being resolved, expectations are rising that the MLCC market will emerge from its bottom in the fourth quarter of this year due to the peak season effect and recovery in automotive demand. Despite the downward cycle, product mix improvements centered on industrial and automotive sectors have accompanied a relatively stable price trend compared to the past.

Researcher Kim Ji-san of Kiwoom Securities explained, "Package substrates and optical communication solutions will continue to show favorable performance trends supported by favorable exchange rate conditions," adding, "Package substrates are strong in demand for 5G antenna substrates linked to the new iPhone launch and FC substrates for ARM processors." Additionally, initial mass production of server semiconductor package substrates (FCBGA) has begun, advancing the product portfolio. The effect of production capacity expansion is expected to appear in the fourth quarter of this year.

Researcher Kim also stated, "Optical communication solutions are expected to rebound in third-quarter performance, supported by improved camera specifications for the main customer's new foldable phone and increased demand for folded zoom cameras from overseas customers," and emphasized, "Compared to past IT economic slowdowns, the profitability of MLCCs has significantly improved, and the strong performance of package substrates has reduced the overall earnings volatility of the company."