[Click eStock] "Samsung Electro-Mechanics, Earnings Expected to Rise Due to Worsening MLCC Supply-Demand Imbalance"

NH Investment & Securities Report
Target Stock Price Raised by 21%

[Asia Economy Reporter Minji Lee] NH Investment & Securities maintained a buy rating on Samsung Electro-Mechanics on the 2nd and raised the target price by 21% from the previous level to 225,000 KRW. This reflects the upward revision of next year's operating profit forecast and the incorporation of the value increase of global competitors into the stock price.

Samsung Electro-Mechanics is expected to see an increase in operating profit next year due to a worsening supply-demand imbalance in MLCC, as well as product mix and margin expansion. The camera module segment is also expected to expand its performance due to increased shipments to customers and growing demand for high value-added products.

The valuation discount compared to global MLCC competitors has recently widened to about 35%, but considering Samsung Electro-Mechanics is the global No. 2 in MLCC and a leading company in camera module technology such as optical zoom camera modules, it is judged to be excessively undervalued compared to competitors. Researcher Lee Gyu-ha of NH Investment & Securities analyzed, “Samsung Electro-Mechanics, the industry’s No. 2, is trading at about a 15% discount compared to Taiyo Yuden, which is ranked around No. 3 in the industry, indicating that it is currently in an excessively undervalued phase.”

The MLCC supply-demand imbalance is expected to widen further next year. MLCC demand is expected to increase by about 15-20% year-on-year due to improved demand in front-end industries such as smartphones and automotive electronics, but supply is expected to increase by only about 10%.

Researcher Lee said, “Generally, in the fourth quarter, when inventory adjustments cause MLCC shipments and margins to decrease compared to the previous quarter, margin expansion compared to the previous quarter is expected, which is also a sign of a favorable business environment,” adding, “Except for last year when there was a one-time profit, only the fourth quarter of 2017, when the industry entered a full-fledged upward trend, showed a margin increase compared to the previous quarter.”

He continued, “The expansion of demand for high-magnification optical zoom cameras and the possibility of diversifying customers based on related technological competitiveness are also mid- to long-term growth drivers.”

This content was produced with the assistance of AI translation services.