"MLCC Prices Can Rise 30% and Still Sell" Samsung Electro-Mechanics Target Price Raised by DB Securities

[Financial News] DB Securities raised its target price for Samsung Electro-Mechanics from 1.5 million won to 2 million won, saying that supply shortages in multilayer ceramic capacitors (MLCCs) and flip chip ball grid arrays (FCBGAs) are strengthening suppliers' pricing power. It kept its investment rating at "buy."
Jo Hyun-ji, an analyst at DB Securities, said on the 1st that "both MLCCs and FCBGAs face clear supply constraints and technical barriers to entry, so there is a high likelihood of further price increases." She added that "the growth led by the components and package solutions divisions gives the company a relative advantage even within the electronics sector, where earnings growth is already strong."
Jo explained that "MLCC price increases are now accelerating." She said products for IT distribution channels, which account for the low teens percentage of total MLCC sales, have already risen by an average of about 30%, while direct-sale IT products, which make up about 30% of sales, have been in individual negotiations since June for price hikes at a similar level to those in distribution channels.
She also said that "MLCCs for AI data centers are also being negotiated individually for price increases of around 20%, although the exact rate varies by product." She added that long-term supply agreements are also being signed at levels more favorable than current delivery prices.
The MLCC market itself remains strong. New capacitor orders at Japanese rivals Murata Manufacturing Co., Ltd. and TAIYO YUDEN rose 26% and 41%, respectively, from the previous quarter as of the end of June, setting new record highs again. As original design manufacturers (ODMs) continue to build inventories, Samsung Electro-Mechanics' own inventory is also believed to be staying at a minimum level.
FCBGAs are also seeing price increases by customer and product since the beginning of the year. In particular, the share of high-value server products is expected to rise from 60% this year to close to 70% next year, which should further boost earnings contribution from next year.
The earnings outlook is also positive. Samsung Electro-Mechanics is expected to post sales of 3.841 trillion won and operating profit of 621 billion won in the third quarter. That would represent increases of 32.9% and 138.5%, respectively, from a year earlier. Operating profit is expected to beat the market consensus of 596 billion won by 4.1%.
Jo said that "the significance lies not just in a simple supply-demand imbalance, but in the fact that pricing power itself has shifted to suppliers." She added that "even considering the recent decline in the won–dollar exchange rate, third-quarter results could meet current market expectations, and there is also room for next year's earnings estimates to be revised up further."
[email protected] Bae Han-geul Reporter