[Click eStock] Samsung Electro-Mechanics Maintains High Profitability Centered on MLCC and Semiconductor Substrates

[Asia Economy Reporter Lee Seon-ae] Daishin Securities announced on the 3rd that it maintains a Buy rating and a target price of 250,000 KRW for Samsung Electro-Mechanics.

Daishin Securities Research Center explained, "The target price is based on a 17.3x price-to-earnings ratio (PER) for 2022. We advise increasing exposure as profitability is expected to be solid next year compared to Q4, and we focus on the expansion of competitiveness in core sectors."

Samsung Electro-Mechanics has secured a different profit structure from before through discontinuation of low-profit businesses and concentrated investment in high value-added sectors. The elimination of loss-making businesses

and the shift toward high value-added areas are judged to have reduced profit volatility compared to the past. Operating profit in 2021 increased by 82.4% year-over-year to 1.51 trillion KRW, and it is expected to maintain 1.57 trillion KRW in 2022.

The Research Center emphasized, "Multilayer Ceramic Capacitors (MLCC) are expected to have strong profitability due to steady IT demand (expansion of PCs and 5G smartphones, high growth in servers), and semiconductor substrates are expected to increase global market share centered on FC BGA, FC CSP, SiP, and AiP."

First, MLCC holds differentiated competitiveness in the ultra-small, high-capacity segment for IT applications. With the enlargement of TVs, expansion of the notebook market, and growth of 5G smartphones, high utilization rates are maintained, and high growth is expected to continue in 2022. Considering that competitors in Japan focus on servers and automotive sectors, and Taiwan and China concentrate on general-purpose fields, concerns about oversupply and price competition leading to profitability decline in 2022 are judged to be low.

For semiconductor substrates, the discontinuation of the R/F business in Q4 is expected to improve profits by approximately 53.5 billion KRW in 2022. Additionally, increased production capacity in FC BGA, SiP, and AiP sectors will lead to further sales and profit growth. FC BGA benefits from the expansion of the global PC and server CPU markets, and SiP and AiP are expected to maintain high margins as supply increases are limited compared to demand due to the rising demand for 5G smartphones.

In 2022, the camera module segment is also expected to show favorable growth and profitability as the proportion of high value-added folded cameras expands, increasing market share and high-pixel ratio in Samsung Electronics’ entry-level segment.

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