[Click eStock] "Samsung Electro-Mechanics, Relatively Weak Boom Intensity... Target Price Down"

Target Price Revised Downward by 14.3% Compared to Previous

On the 30th, Korea Investment & Securities downgraded the target price of Samsung Electro-Mechanics from 230,000 KRW to 197,000 KRW, anticipating that the company's third-quarter earnings this year will fall short of market expectations. The investment rating was maintained at 'Buy.'

Park Sang-hyun, a researcher at Korea Investment & Securities, explained, "Samsung Electro-Mechanics' third-quarter sales are expected to increase by 12.6% year-on-year to 2.66 trillion KRW, and operating profit is expected to rise by 22.4% to 225.2 billion KRW, which is 9.1% below the consensus (average securities firm forecast) based on operating profit. IT demand remains sluggish, and the exchange rate situation is also unfavorable." He added, "We judge that the boom in multilayer ceramic capacitors (MLCC) is weaker than before, and we calculated the target price by applying a price-to-book ratio (PBR) of 1.68, which is a 20% discount on the average PBR during the 2019-2021 boom period."

Considering the increasing operating rate and healthy inventory levels, the current MLCC market is booming but the intensity is weaker compared to the previous period. Researcher Park said, "Given an operating rate of 90% and inventory days of 4 weeks, it is difficult to judge the current MLCC market as bad. However, compared to the previous boom driven by front-end demand such as 5G smartphones and electric vehicles, the current boom's intensity is relatively weak."

The most notable application at this point is servers, but Samsung Electro-Mechanics has a limited sales proportion in this sector. Park explained, "The sales impact from artificial intelligence (AI) is estimated to be +10% for smartphones, +30% for PCs, and +20 times for servers. However, the server segment accounts for only about 4.9% of Samsung Electro-Mechanics' MLCC sales. Although sales doubled year-on-year, the proportion remains limited. This is why the current phase is somewhat disappointing compared to the previous boom."

Servers are also establishing themselves as a key application in package substrates. This is because sales of flip-chip ball grid array (FC-BGA) for server central processing units (CPUs) are rising alongside AI demand. Park said, "Sales for server CPU are expected to double compared to last year. From the fourth quarter of this year, sales for AI accelerators are also expected to be added, with FC-BGA sales proportions estimated at 43.6% in 2024, 46% in 2025, and 51.5% in 2026."