“Samsung Electro-Mechanics’ share price can’t keep pace with its improving earnings” ... Hyundai Rotem target price cut 19% on weak new orders [Stocktopia]

[Financial News] Here is our roundup of reports from major securities firms as of the morning of October 20.
Analysts say Samsung Electro-Mechanics’ earnings improvement has gained momentum amid shortages of package substrates and multilayer ceramic capacitors (MLCCs), but its share price has failed to keep pace amid concerns about slower growth in artificial intelligence (AI).
Hyundai Rotem was assessed as facing an inevitable slowdown in profitability next year because of weak new orders in its defense business. Korea Electric Power (KEPCO) is expected to post weak earnings due to lower industrial electricity rates and high oil prices, but analysts say most of the negative factors are already reflected in its share price and that the stock has entered undervalued territory.
◆ Samsung Electro-Mechanics (009150)― IBK Investment & Securities / Analyst Kim Woon-ho
- Target price: KRW 1.75 million (maintained) | Previous day’s close: KRW 1.17 million
- Investment rating: Buy (maintained)
IBK Investment & Securities raised its earnings forecasts for every quarter from the third quarter onward this year for Samsung Electro-Mechanics, while maintaining its target price at KRW 1.75 million.
Analyst Kim Woon-ho forecast that “earnings in the package and components divisions are improving in both revenue and profitability through a better product mix and price increases, and production capacity is also expected to improve through investment.”
Samsung Electro-Mechanics disclosed orders related to MLCCs worth KRW 4 trillion in the second half of this year, including silicon capacitors. Analyst Kim viewed this as “an indicator that confirms the supply shortage.” Regarding investment in package substrates, he said, “It is even more encouraging that the investment is scheduled for after 2028, because that runs counter to recent concerns that memory demand will peak in 2027.”
However, Analyst Kim said that “despite various signals of growth, concerns about growth are also mounting,” and that “the spread of this sentiment across the AI supply chain is also weighing negatively on share prices.” The decision to leave the target price unchanged also reflects lower stock valuations for Japanese peers Ibiden and Murata.
Analyst Kim explained that “the lower valuation had a greater impact, despite the upward revision to earnings forecasts compared with the previous outlook.” The analysis is that the share price is failing to keep pace with improving earnings because concerns about AI investment are lowering the valuation multiples the market assigns to component stocks.※ Multilayer Ceramic Capacitor (MLCC)These are tiny components that store electricity and supply it steadily to a circuit. Hundreds to thousands are installed in a single smartphone, and tens of thousands in an AI server, earning them the nickname “the rice of the electronics industry.”※ Silicon CapacitorA capacitor made using a silicon wafer as its base, it can be manufactured thinner and smaller than ceramic products. It is used in high-performance semiconductor packages for data centers.※ Package SubstrateA substrate that electrically connects a semiconductor chip to a motherboard. High-value-added substrates are used in high-performance semiconductors for AI accelerators and servers, and are considered a factor driving up the profitability of Samsung Electro-Mechanics’ package division.
◆ Hyundai Rotem (064350)― Kiwoom Securities / Analyst Lee Han-gyeol
- Target price: KRW 195,000 (cut 18.8%; previously KRW 240,000) | Previous day’s close: KRW 100,700
- Investment rating: Buy (maintained)
Kiwoom Securities lowered its target price for Hyundai Rotem to KRW 195,000, saying a slowdown in profitability next year is inevitable because of weak new orders in the defense business.
Third-quarter operating profit came to KRW 247.1 billion, below the market consensus of KRW 273.7 billion. Analyst Lee Han-gyeol attributed this to “slower revenue growth due to the strengthening of the won.” However, with deliveries of 14 K2 tanks under Poland’s second executive contract (EC2) now underway, he estimated that export profitability in the defense business had “recovered to the high-30% range.”
The concern is next year. Analyst Lee said adjustments to next year’s production schedule would be inevitable “as a result of difficulties securing new orders for further growth, although the second Polish K2 project is proceeding smoothly.” He said defense revenue next year would remain at a similar level, but the share of domestic mass-production projects would increase by about 10 percentage points from this year, and “profitability is expected to weaken.” In light of this, he cut his estimate for next year’s operating profit by 20.4%.
Overseas projects are progressing, albeit slowly. The Peru tank project is awaiting next year’s defense budget allocation, while Romania plans to submit a bid proposal after its prime minister is appointed. Regarding Iraq, Analyst Lee said he “expects negotiations to gain momentum if conflicts in the Middle East are resolved.”※ Poland’s Second Executive Contract (EC2, Executive Contract 2)This is a second K2 tank supply contract signed by Hyundai Rotem with Poland’s Armaments Agency in August 2025, covering 180 tanks and worth about KRW 9 trillion. It follows the first contract for 180 tanks in 2022 and includes locally produced models. Deliveries began this quarter, and the contract is seen as supporting a recovery in profitability in the defense business.
◆ Korea Electric Power (015760)― Daishin Securities / Analyst Heo Min-ho
- Target price: KRW 40,000 (cut 25.9%; previously KRW 54,000) | Previous day’s close: KRW 29,100
- Investment rating: Buy (maintained)
Daishin Securities lowered its target price for KEPCO to KRW 40,000, saying weak earnings due to lower industrial electricity rates and high oil prices had been compounded by the company’s failure to participate in a U.S. AP1000 nuclear power project.
Third-quarter operating profit is estimated at KRW 3.09 trillion, down 45.3% from a year earlier. Although that is above the consensus estimate of KRW 2.36 trillion, Analyst Heo Min-ho said he “doesn’t think it will mean much, since the weak earnings outlook remains unchanged.” He cited a recovery in the nuclear power plant operating rate to 80.1%, but also pointed to a 32.5% increase in fuel costs and a 1.4% decline in the average electricity sales price as factors reducing earnings.
The burden from electricity rates remains. Industrial electricity rates fell by 0.8–0.9% following a rate adjustment in April this year, and the introduction of a regional electricity pricing system in 2027 is expected to bring a further reduction of 5.5–5.9%. He explained that oil price increases are reflected in liquefied natural gas (LNG) import prices four to five months later, adding to fuel costs.
Even so, the share price has fallen to around 0.35 times its book value per share (price-to-book ratio, or PBR), leading analysts to conclude that most negative factors are already priced in. Analyst Heo said “expectations remain valid” for expanding overseas nuclear construction projects, including U.S. APR-1400 construction and entry into Vietnam’s nuclear power market. However, he stressed that “the prerequisite for a share price rise is for oil prices to decline and stabilize,” adding that “this is a time for a medium- to long-term approach.”
The earnings outlook has weakened, but the share price is already near the bottom. The analysis is that the stock can rise only if oil prices stabilize and expectations for an earnings recovery after the third quarter next year revive.※ AP1000A Generation III+ pressurized water reactor with a capacity of 1.1 million kW, designed by Westinghouse Electric Company of the United States. KEPCO had hoped to participate in AP1000 construction projects in the United States, but those plans fell through, prompting a downward revision to the value of its overseas nuclear power business.※ APR-1400 (Advanced Power Reactor 1400)A 1.4-million-kW pressurized water reactor developed independently by South Korea, it is the model exported to the Barakah nuclear power plant in the United Arab Emirates (UAE). Whether KEPCO participates in construction projects in the United States is considered a key factor for its overseas nuclear power business.

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