iM Securities cut the target price of Samsung Electro-Mechanics(009150) by 33% to 2 million won from 3 million won. The adjustment reflects lower valuations across the artificial intelligence (AI) supply chain. However, it kept a "buy" rating, saying the markets for multilayer ceramic capacitors (MLCC) and flip-chip ball grid array (FC-BGA) are stronger than expected. The previous trading day's closing price of Samsung Electro-Mechanics was 879,000 won.
Park Jeong-ha, an analyst at iM Securities, cited the drop in the overall price-earnings ratios (PER) of AI-related stocks as the reason for lowering the target price. The share price of Samsung Electro-Mechanics has fallen 63% from its peak amid concerns about the sustainability of the upcycle and a concentration of funds into a few stocks.
Even though the stock fell sharply, the earnings outlook was raised. iM Securities increased its operating profit estimates for Samsung Electro-Mechanics for 2026–2028 by 13%, 19%, and 19%, respectively, to 1.9 trillion won, 4.2 trillion won, and 5.8 trillion won. It said earnings visibility has improved through 2028 thanks to MLCC long-term agreements (LTA) and investment support from FC-BGA customers.
Park said, "Based on 2027 and 2028 earnings, the current share price implies PER of 20 times and 14 times, respectively, which has reverted to around the 10-year average of 19 times," adding, "Given the business mix has improved around server products, the recent share price drop is excessive."
Another factor for better results is that Samsung Electro-Mechanics will raise prices by 30% for all MLCC items to distribution channels starting Aug. 1. iM Securities said that with the price hike, 2027 MLCC sales could increase 5%–6% from its previous outlook, and companywide operating profit could improve by about 10%.
As demand for server MLCCs increases, overall supply and demand are tightening. Server products account for a small share of total shipments, but many are high-capacity and ultra-compact items, which significantly consume production capacity. Samsung Electro-Mechanics said it recently signed long-term supply agreements with 10 customers, including big tech companies.
FC-BGA is also maintaining high profitability on the back of demand for servers and networking equipment. The company said a supplier-favorable market is forming, with customers even providing non-repayable funding to expand production capacity.
In the second quarter, Samsung Electro-Mechanics posted sales and operating profit of 3.46 trillion won and 440.3 billion won, beating market expectations by 5% and 8%, respectively. iM Securities projects third-quarter sales of 3.8 trillion won and operating profit of 591.4 billion won. Both are 9% and 12% higher than its previous estimates.
Park projected, "If market investor sentiment stabilizes, the rebound speed of Samsung Electro-Mechanics will stand out within related sectors."