KB Securities assessed that, due to the surge in demand for artificial intelligence (AI) products, performance improvement is expected for Samsung Electro-Mechanics. They maintained an investment opinion of 'buy' and selected it as the 'top pick' in the IT component sector, raising the target price by 20% to 240,000 won. Samsung Electro-Mechanics' closing price the previous day was 178,400 won.
KB Securities projected that Samsung Electro-Mechanics will report sales of 2.84 trillion won and operating profit of 247.7 billion won for the third quarter of this year. This represents increases of 9% and 7% year-on-year, which slightly exceeds the consensus estimate.
Lee Chang-min, a researcher at KB Securities, noted, "Expectations for the highest performance in two years are strong, as the won-dollar exchange rate has rebounded since the end of the second quarter, and strong demand growth continues, particularly for AI servers and automotive parts. Seasonal peak effects are also expected to lead to a rebound in demand for IT components."
They also forecast that, as the utilization rate rises, fixed cost burdens will decrease, and market growth focused on high-value components will continue, leading to ongoing improvements in profitability due to better product mix.
Regarding the maintenance of the top pick stance, they explained that this is due to the expected boom in the multilayer ceramic capacitor (MLCC) and packaging substrate industries, benefiting from AI.
This researcher explained, "In the case of high-value MLCCs, we believe we have entered the early stage of a supply shortage cycle, as demand for automotive MLCCs continues to rise steadily, and the rapid increase in demand for AI servers is filling the void of underperforming IT demand."
For MLCCs aimed at AI servers, the demand per application is large, creating a significant capacity encroachment effect.
This researcher said, "Since the utilization rates of top-tier companies such as Samsung Electro-Mechanics and Murata have already surpassed 90%, we can expect price increases for MLCCs at the end of the year and the beginning of next year," and added, "If this materializes, the improvement in Samsung Electro-Mechanics' performance is expected to increase significantly in the future."