[Click e-Stock] "MLCC Supplier Advantage... Samsung Electro-Mechanics Target Price Raised"

On September 3, Hana Securities raised its target price for Samsung Electro-Mechanics from 174,000 won to 240,000 won, stating, "With the supply of multilayer ceramic capacitors (MLCC) tightening, especially for industrial and automotive applications, it is now possible to re-evaluate the company's valuation." The firm also maintained its "Buy" investment rating.

On this day, Min Kyung Kim, a researcher at Hana Securities, explained, "The target price was calculated by applying the average price-to-book ratio (PBR) from 2018, a period of MLCC supply shortages, to the expected book value per share (BPS) for next year." She added, "In addition to the component business division, the upward visibility of the package and optical solution divisions has been secured, and the increasing share of revenue from data center-related sales should limit downside risks."

The most notable point is the strengthening MLCC market. Kim noted, "Artificial intelligence (AI) servers consume more than 10 times the power of regular servers, requiring a greater number of high-capacity, high-voltage MLCCs to stabilize current supply. As demand increases, industrial and automotive MLCCs are larger in size and have more dielectric layers than those for information technology (IT), resulting in production capacity losses and limiting supply expansion."

The rising utilization rates among MLCC manufacturers are also a positive factor. Kim stated, "Major MLCC makers capable of meeting demand for high-value-added MLCCs, including Samsung Electro-Mechanics, have seen utilization rates reach the 90% range in the second half of the year." She continued, "Considering the launch of new AI server products and the increasing penetration of 800G networks, the MLCC supply-demand situation is likely to become even tighter next year, leading to a market environment that favors suppliers."

The changing business structure of Samsung Electro-Mechanics' component division is another key point. Kim predicted, "As of the first half of this year, the share of non-IT sales in the component division has reached about 50%, and next year, the non-IT portion is expected to surpass the IT portion."

Regarding the package division, she said, "Next year, securing multiple AI accelerator clients will improve utilization rates and profitability." She added, "FCBGA (flip chip ball grid array) for AI accelerators and servers has more than twice the area and 1.5 to 2 times the number of layers compared to those for PCs, which causes production capacity losses, but the average selling price (ASP) is estimated to be more than 10 times higher."

Additionally, Kim said, "With increased visibility for profit growth next year through the expansion of high-value-added products, Samsung Electro-Mechanics' stock price is expected to continue performing relatively well compared to other IT companies in the second half of the year."