DB Securities on the 1st said Samsung Electro-Mechanics(009150) is likely to see steep earnings growth on the back of price hikes and a boom in multilayer ceramic capacitors (MLCC) and flip-chip ball grid array (FCBGA). It maintained a "buy" rating and raised its target price to 2 million won from 1.5 million won. The previous session's closing price was 1,458,000 won.
Cho Hyeon-ji, an analyst at DB Securities, explained the trend of MLCC price hikes at Samsung Electro-Mechanics. Cho said, "IT distribution channels (a little over 10% share) were raised by an average of about 30%, and IT direct transactions (about 30%) have been under individual negotiation since June with a similar magnitude to the distribution channels," adding, "For data centers (about 20%), although the increase varies by product, individual negotiations are under way for an increase of about 20%, and it is understood that long-term supply agreements (LTA) are being signed at levels more favorable than current delivery prices."
She added, "Global competitors such as Murata and Taiyo Yuden have again set a record high in new capacitor orders as of the end of June, underpinning a strong boom."
Cho also offered a positive assessment of the FCBGA division. Cho said, "It is understood that sequential price hikes have been implemented since the start of the year," and forecast, "By preemptively pushing products with relatively low added value first, the share of high–value-added products will increase."
The server-grade share of FCBGA is expected to approach 70% next year from 60% this year, and its contribution to earnings is likely to steepen from next year. DB Securities forecast that in the third quarter this year, Samsung Electro-Mechanics will post sales of 3.841 trillion won and operating profit of 621 billion won, in line with the market consensus (operating profit of 596 billion won).
Cho said, "Beyond a simple supply-demand imbalance, it is significant that bargaining power itself has shifted to suppliers," adding, "Both MLCC and FCBGA have clear supply constraints and technological barriers, so the likelihood of additional price hikes is high, giving them a comparative edge even within the electrical and electronics sector where earnings growth is strong."