DS Investment Securities has raised its target price for Samsung Electro-Mechanics to 2.6 million won, citing expected improvements in profitability from multilayer ceramic capacitors (MLCC) and semiconductor package substrate businesses. The firm maintained its 'buy' rating.
In a report released on October 7, analyst Jo Dae-hyung noted, "Both the components division and package solutions are benefiting from an improved product mix and price increases due to a higher proportion of high-value products. We expect results to exceed market expectations even in an unfavorable exchange rate environment."
For the third quarter of this year, Samsung Electro-Mechanics is projected to report consolidated sales of 3.8728 trillion won, a 34.1% increase from the same period last year, and an operating profit of 651.6 billion won, up 150.3%. This operating profit is approximately 4.9% higher than the market forecast of 621.4 billion won, with an expected operating margin of 16.8%.
The key factors driving this performance improvement include increased demand for high-value MLCCs and price hikes. On October 6, Samsung Electro-Mechanics signed an additional long-term supply contract for MLCCs worth 285.6 billion won, bringing the total contract value to approximately 2.4 trillion won. DS Investment Securities assessed that proactive inventory securing by clients is leading to these long-term supply agreements.
In the second half of the year, sequential price increases are also expected for major MLCC clients. With the growing proportion of high-value products and limited production capacity, demand is expected to continue increasing, leading to further growth in operating profit in the fourth quarter.
The growth potential of the flip-chip ball grid array (FC-BGA) semiconductor package substrate business is also viewed positively. DS Investment Securities estimates that the actual investment scale for the FC-BGA production line will exceed 9 trillion won, while the publicly announced investment amount is about 6.8 trillion won. Approximately 80% of the investment is supported by client funding, and price increases for substrates are reportedly occurring every quarter.
Analysts noted that the increasing share of large substrates used in high-performance central processing units (CPUs) is creating a supplier-dominant market. As a result, profitability improvements in the package substrate sector are expected to accelerate.
DS Investment Securities has revised its operating profit forecasts for Samsung Electro-Mechanics to 2.1062 trillion won for this year and 3.8362 trillion won for next year, representing increases of 6.7% and 23.7%, respectively, from previous estimates. Reflecting this, the target price has been raised to 2.6 million won.
Analyst Jo emphasized, "It is reasonable to assign a premium to a company that has established a solid position in both MLCC and FC-BGA markets. Given the expectation of upward revisions to quarterly earnings estimates, it is time to respond with a buy recommendation."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.