Kyobo Securities on the 6th said earnings improvement at Samsung Electro-Mechanics will begin in earnest on the back of expanding demand for AI server parts. It sharply raised its target price to 3 million won from 1.2 million won and maintained its "Buy (BUY)" rating.
Kyobo Securities projected Samsung Electro-Mechanics' second-quarter revenue at 3.4084 trillion won and operating profit at 411 billion won. That would be up 22.4% and 93.0%, respectively, from a year earlier, and above the market consensus for operating profit of 382 billion won.
Choi Bo-young, an analyst at Kyobo Securities, said, "It is a phase where the profit growth cycle confirmed by first-quarter results accelerates further," adding, "The operating profit margin (OPM) is also expected to enter double digits at 12.1%."
The key to the earnings improvement is AI servers. With demand surging for multilayer ceramic capacitors (MLCC) for AI servers, both shipments and selling prices are rising, and prices for server flip-chip ball grid array (FCBGA) are also continuing to climb amid ongoing supply shortages.
Choi said, "As demand for ultra-small, high-capacity MLCCs for AI servers surges, shipment expansion and price increases, along with a mix shift toward high value-added applications such as servers and automotive electronics, are occurring simultaneously, and operating leverage based on high utilization will be added to lead profit growth."
It also expected the package solution institutional sector to see the fastest pace of earnings improvement.
Choi explained, "As AI Semiconductor becomes larger in area and with more layers, a tight supply-demand environment persists, with price hikes centered on server FCBGA continuing, and with mix improvement from a higher sales share to servers and networks added, profitability will enter a phase one step higher."
It also assessed a recently signed MLCC supply contract as a sign supporting an industry upturn. It said a client securing annual volumes in advance is an example showing that the supply shortage of MLCCs for AI servers is intensifying.
Choi said, "The recently disclosed large MLCC supply contract is an unusual case of a client securing annual volumes in advance and suggests a structural supply shortage of MLCCs for AI servers and a shift of supply-demand leadership to suppliers," adding, "With operations running at full capacity, price hikes from converting to high value-added lines are expected to spread across all product groups."
Choi went on, "The disclosed silicon capacitor supply contract is set to join as a new growth axis for the substrate institutional sector," and projected, "In the second half, volume, prices, and product mix improvement will appear simultaneously, expanding profit growth with each passing quarter."