SK Securities said on the 3rd that it views Samsung Electro-Mechanics as the top pick among large caps in the information technology (IT) hardware sector, citing accelerating order increases and utilization gains and the start of supply price hikes. It raised its target price to 600,000 won from 410,000 won and maintained a buy rating. The previous trading day's closing price for Samsung Electro-Mechanics was 417,000 won.
SK Securities estimated Samsung Electro-Mechanics' operating profit for the first quarter of this year at 267.2 billion won, up 33% from a year earlier. This reflects one-off expenses; excluding them, profit would far exceed the previous estimate of 284.2 billion won.
Since the start of the year, orders for multilayer ceramic capacitors (MLCC) have increased; flip chip ball grid array (FCBGA) can reach 100% utilization this year or next; and the average selling price (ASP) of key components is rising. These factors are cited as reasons for earnings growth.
Park Hyeong-woo, an analyst at SK Securities, said, "FCGBA prices are at the start of the current uptrend, and in the cycle five years ago, prices for some substrates rose more than 100%," adding, "Operating profit in the second quarter of this year is expected to rise 61% year over year to 342.1 billion won."
The current price-to-earnings ratio (PER) is 28.3 times, lower than global competitors at around 40 to 50 times. Park emphasized, "Competitors have strengths in manufacturing higher-layer-count substrates with finer circuitry, but Samsung Electro-Mechanics is the world's only company that can insert 'individualized passive components' inside a 'high-density package substrate.'"
This embedded substrate technology suppresses noise within the package and minimizes signal loss. It can also improve power efficiency.
Park said, "Samsung Electro-Mechanics is one of Korea's representative artificial intelligence (AI) component makers, and there will be ongoing re-ratings of this year's operating profit consensus (market forecast)."