Samsung Electro-Mechanics Forecast to Post Record Third-Quarter Results on Strong AI Component Demand; Target Price Set at 3 Million Won

[Financial News] KB Securities forecast that Samsung Electro-Mechanics will post record-high results in the third quarter of this year, driven by strong performance in multilayer ceramic capacitors (MLCCs) and flip-chip ball grid arrays (FCBGAs) for artificial intelligence (AI) servers. The brokerage maintained its "Buy" rating and target price of 3 million won. The target price is 125.6% higher than the closing price of 1.33 million won on the 17th.
Lee Chang-min, an analyst at KB Securities, said in a report on the 18th, "Samsung Electro-Mechanics' third-quarter revenue is expected to rise 32.6% year on year to 3.831 trillion won, while operating profit is projected to increase 153.6% to 660.1 billion won," adding, "An earnings surprise well above market expectations is anticipated."
KB Securities' operating profit forecast is 10.5% above the market estimate of 597 billion won. The operating margin is expected to reach 17.2%, up 8.2 percentage points from the same period a year earlier. The market's third-quarter operating profit estimate, which stood at around 470 billion won just three months ago, has been rising rapidly in a short period, the brokerage explained.
AI server components are expected to lead the earnings improvement. Higher plant utilization rates and price increases for MLCCs and FCBGAs, along with a larger share of high-value-added products, are driving the growth in results.
"The effects of full utilization, price increases, and an improved product mix for MLCCs and FCBGAs continue to lift earnings," Lee said. "Alongside a sharp improvement in profitability, the company is expected to set a new record for its results." The operating margin of the MLCC segment is expected to rise from 11.7% in the first quarter of this year to 16.6% in the second quarter and 22.0% in the third quarter. Over the same period, the operating margin of the package substrate segment is projected to increase from 7.6% to 13.6% and then 20.8%.
KB Securities raised its operating profit forecast for Samsung Electro-Mechanics this year by 4.1%, from 2.029 trillion won to 2.111 trillion won. Its operating profit forecast for next year was also increased by 5.2%, from 3.981 trillion won to 4.189 trillion won.
The brokerage also assessed that the gap between the stock price and earnings had widened. Samsung Electro-Mechanics' share price has fallen 41% from its previous high of 2.254 million won, recorded on June 19, but its business conditions have actually improved during the same period, including through the signing of three long-term MLCC supply contracts with U.S. big tech companies.
With supply shortages in package substrates continuing, the brokerage expected that long-term contracts on terms favorable to suppliers could be signed, including advance payments and clauses to protect profitability.
"Core AI components such as MLCCs and FCBGAs are enjoying an unprecedented boom, and further improvement in market conditions is expected," Lee said. "Excessive selling driven by psychological concerns has created a gap between the stock price and earnings, making the current period an opportunity to buy at low prices."

[email protected] Lee Jeong-hwa Reporter