[Click eStock] "Samsung Electro-Mechanics, Favorable Business Environment... Time for a Buy Strategy"

[Asia Economy Reporter Kwon Jae-hee] DS Investment & Securities maintained a 'Buy' rating and a target price of 160,000 KRW for Samsung Electro-Mechanics on the 5th.

Samsung Electro-Mechanics' Q4 sales last year are expected to be 2 trillion KRW, and operating profit 114 billion KRW, falling short of market consensus by 7.6% and 40.2%, respectively.

By business segment, the Component division is expected to see a decline in operating rate in Q4 compared to the previous quarter due to ongoing inventory adjustments in the Greater China region, leading to deteriorated profitability from fixed cost burdens. The Optical Communication segment is anticipated to record weak operating profit due to an overall demand decline except for flagship strategic clients. The Package division is also estimated to experience reduced profitability due to a slowdown in BGA (memory, PC, smartphone).

The positive aspect is that a favorable operating environment is being established this year. Local governments in China are promoting consumption stimulation policies to boost the economy, which is likely to gradually expand nationwide. A potential risk is volatility in quarantine policies due to a resurgence of COVID-19, which could delay demand recovery. However, new product launches by set manufacturers are expected this year, and demand recovery is anticipated. The inventory adjustment speed in the upstream distribution channels is slower than expected, so short-term performance may be weak, but it is important to note that inventory burdens are easing due to proactive operating rate adjustments, and profitability can rapidly improve through operating rate recovery in the future.

Researcher Kwon Tae-woo of DS Investment & Securities analyzed, "Considering that the stock price has led earnings during the industry downturn cycle, Samsung Electro-Mechanics' multiple will quickly rebound as the industry recovers and demand improves," adding, "It is a time when a buying strategy considering the overall direction of recovery from a mid- to long-term perspective is necessary."

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