[Click eStock] "Samsung Electro-Mechanics, Operating Profit Down 5% This Year"…Target Price Lowered

[Asia Economy Reporter Lee Jung-yoon] Hana Securities on the 13th lowered its operating profit forecast for Samsung Electro-Mechanics this year by 5% from the previous estimate and applied a reduced multiple due to the stock price decline of global multilayer ceramic capacitor (MLCC) companies, lowering the target price from 260,000 KRW to 235,000 KRW. However, the buy rating was maintained.

Samsung Electro-Mechanics' sales for the second quarter of this year are expected to increase by 1% year-on-year to 2.4356 trillion KRW, while operating profit is forecasted to decrease by 0.3% to 357 billion KRW. These results fall short of consensus estimates by 1.3% and 1.5%, respectively, due to a longer-than-expected inventory adjustment by smartphone manufacturers in the Greater China region. Additionally, the domestic customers' smartphone volume also fell below previous forecasts, leading to weaker estimates for components and module solutions compared to prior expectations.

Demand for IT products such as smartphones and PCs remains uncertain in the second half of this year. Kim Rok-ho, a researcher at Hana Securities, stated, "In preparation for demand uncertainty in the second half, we have recently detected proactive inventory adjustments and order reductions by smartphone set manufacturers," adding, "Therefore, it is difficult to anticipate a volume increase in the second half that would fully compensate for the weakness seen in the second quarter."

Researcher Kim continued, "A 7% downward revision of Samsung Electro-Mechanics' operating profit for the second half of 2022 is inevitable," and "Operating profit for this year is estimated at 1.5075 trillion KRW, representing only a 1.4% increase compared to the previous year." However, considering the year-on-year contraction in most IT products centered on smartphones, this year's performance is judged to be relatively strong. The company’s fundamental strength has improved compared to previous estimates, and the quality of operating profit has been enhanced due to the expanded contribution of package solutions.

Kim said, "Samsung Electro-Mechanics' stock price has fallen 33% this year, and Hana Securities' annual operating profit forecast for this year has been revised down by 11% from the beginning of the year," but added, "Although there is still a possibility of further downward revisions after the second-quarter earnings announcement, it is unlikely that adjustments will exceed 10% compared to the current forecast."

He added, "We consider this a phase of forming a bottom rather than further stock price declines," and "If a recovery signal in China's smartphone market is detected in the second half, this stock will be the most noteworthy."

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