DS Securities, Samsung Electro-Mechanics price target rises... “Good performance for MLCC and substrate”

DS Investment & Securities announced on the 7th that it raised its target stock price for Samsung Electro-Mechanics [009150] from 1.6 million won to 2.6 million won, saying that the profitability of the multilayer ceramic capacitor (MLCC) and flip chip ball grid array (FC-BGA) businesses is improving. The investment opinion was maintained at 'buy'.

Daehyung Cho, a researcher at DS Investment & Securities, said in a report that day, "We have established a solid position in both MLCC and FC-BGA axes, which are the most bottlenecked," and added, "It is time to respond by buying as estimates are expected to rise every quarter."

DS Investment & Securities predicted Samsung Electro-Mechanics' third quarter sales to be KRW 3.8728 trillion and operating profit to be KRW 651.6 billion. This is an increase of 34.1% and 150.3%, respectively, compared to the same period last year, and operating profit is expected to exceed the market consensus (forecast) of 621.4 billion won by about 5%.

Researcher Cho explained, “Despite the unfavorable environment of the falling won/dollar exchange rate, profitability will improve as the proportion of high value-added products and the effect of price increases occur simultaneously in the component and package solution business.”

In particular, in the case of MLCC, production capacity is being exhausted rapidly due to the increasing proportion of high value-added products, and customer companies' demand for preemptive volume security is leading to long-term supply contracts.

DS Investment & Securities has determined that Samsung Electro-Mechanics has secured a long-term MLCC supply contract worth about 2.4 trillion won to date, recently adding a contract worth 285.6 billion won.

Researcher Cho predicted, “We can also expect sequential price increases for MLCC direct payment customers in the second half of the year,” and added, “The profit increase trend will continue in the fourth quarter.”

The FC-BGA business is also believed to be entering a supplier-dominant market.

DS Investment & Securities reported that the announced investment size is KRW 6.8 trillion, but the actual FC-BGA line investment size is estimated to be more than KRW 9 trillion, of which approximately 80% is in the form of customer support.

It is expected that production capacity erosion and price increases due to the increase in large-area products for high-performance central processing units (CPUs) will also contribute to improving profitability.

Accordingly, DS Investment & Securities raised Samsung Electro-Mechanics' operating profit forecast for this year by 6.7% from KRW 1.9748 trillion to KRW 2.1062 trillion, and next year's forecast by 23.7% from KRW 3.1022 trillion to KRW 3.8362 trillion.

The target price of 2.6 million won presented this time is in the mid-to-upper range among securities market forecasts. Recently, Hana Securities and Kyobo Securities each offered 3 million won, and Mirae, Kiwoom, Daishin, and Daol Investment & Securities offered 2.8 million won for Samsung Electro-Mechanics.

On the other hand, Korea Investment & Securities offered 2.4 million won, Meritz Securities offered 2.2 million won, iM Securities offered 2.1 million won, and DB Securities offered 2 million won.

Samsung Electro-Mechanics' closing price on the previous trading day was 1,675,000 won, and the upside potential to DS Investment & Securities' target stock price is 55.2%.