KB Securities raised its target price for Samsung Electro-Mechanics by 36% to 3 million won from 2.2 million won, saying the multilayer ceramic capacitor (MLCC) and packaging substrate markets have entered a super-boom phase. It kept its investment opinion at "Buy." The previous trading day's closing price for Samsung Electro-Mechanics was 2.2 million won.
Lee Chang-min, a KB Securities researcher, cited the expanding growth potential of the MLCC and packaging substrate businesses as the reason for the higher target price. Lee raised the company's five-year compound annual growth rate (CAGR) forecast for operating profit to 73% from 68%.
Lee said, "The market's expectations for the MLCC and packaging substrate cycle are still low," and noted, "It is highly likely that upward revisions to earnings forecasts will continue."
In particular, the expansion of the artificial intelligence (AI) server market is driving demand growth. As graphics processing units (GPUs) and application-specific integrated circuits (ASICs) move to higher specifications, demand for MLCCs and packaging substrates installed in AI servers is rising rapidly, but supply is not keeping up.
In fact, for high-capacity MLCCs and large-area packaging substrates for AI servers, the number of manufacturers capable of production is limited, and securing Production yield is assessed as not easy. Lee said, "For both MLCCs and packaging substrates, the amount installed per server rack is continuing to more than double," and forecast, "On the other hand, because supply growth is limited, a supply shortage will persist for at least the next two years."
Lee also raised the possibility of price increases due to supply-demand imbalances. Lee said, "A tight supply-demand situation is expected to continue for more than the next two years, and selling price increases due to imbalances are also anticipated."
Tensions between China and Japan are also cited as a favorable variable for Samsung Electro-Mechanics. As China tightens rare-earth export controls on Japanese companies, Japanese MLCC makers could face heavier burdens in procuring materials and supplies.
Lee said, "A windfall from the prolonged China-Japan tensions is also expected," and analyzed, "If this leads to production disruptions at Japanese companies, MLCC prices could rise and Samsung Electro-Mechanics could benefit relatively."