“From 1.3 million won to 3.4 million won”... Buy based only on earnings? This stock gets unanimous “Buy” recommendations [Shareholder Club]

[Financial News] Brokerages set a target price of as much as 3 million won for Samsung Electro-Mechanics after it posted third-quarter earnings above expectations this year. Demand for components for AI servers surged, driving record-high earnings in the third quarter, and analysts expect this trend to continue through next year.

In reports on the 29th, KB Securities maintained its target price for Samsung Electro-Mechanics at 3 million won, Daishin Securities at 2.8 million won and DB Securities at 2.2 million won. Hana Securities cut its target from 3 million won to 2 million won. All four brokerages maintained their “Buy” ratings, and Daishin, DB and KB Securities named the company their top pick in the sector.
Samsung Electro-Mechanics shares closed at 1,306,000 won on the 28th. They fell 12.9% over the past month but were up about 460% from a year earlier. The implied upside against the target prices issued this time is 53–130%.
Lee Chang-min, a KB Securities analyst who issued the highest target price, said, “MLCCs and FC-BGAs are in an unprecedented supercycle,” adding, “Given the extremely tight supply and demand, further improvement in industry conditions and upward revisions to consensus estimates are likely to continue.” KB Securities calculated its target price using the discounted cash flow (DCF) method and set it as high as 3.4 million won in its bull-case scenario.
Hana Securities’ target-price cut was not due to its earnings outlook. It resulted from a change in its valuation method to sum-of-the-parts (SOTP), reflecting lower multiples among peer companies. Kim Min-kyung, an analyst at Hana Securities, said, “Although we lowered our target price, we maintain our view on medium- to long-term earnings growth,” adding, “We need to gauge the tone on pricing policy and capacity-expansion plans at Murata Manufacturing Co., Ltd.’s earnings announcement on the 30th.”

Earnings are what underpin the target prices. Samsung Electro-Mechanics’ third-quarter revenue rose 30.3% from the same period a year earlier to 3.7633 trillion won. Operating profit increased 165.5% to 691 billion won, beating consensus of 645.3 billion won by 7.1%. Its operating margin rose 5.7 percentage points from the previous quarter to 18.4%. Both revenue and operating profit were quarterly records.
Although the won fell sharply against the dollar in the third quarter, multilayer ceramic capacitors (MLCCs) for AI data centers and flip-chip ball grid arrays (FC-BGAs) drove earnings higher. According to DB Securities, the average selling price (ASP) of MLCCs rose 13% from the previous quarter, while FC-BGA revenue increased 27%. As a result, revenue in the Components division rose 14% to 1.883 trillion won, and revenue in Package Solutions increased 22% to 939 billion won.
Jo Hyun-ji, an analyst at DB Securities, said, “The operating margin in the Components division rose to 22% from 13% a year earlier, while the FC-BGA margin climbed to 29% from 11%, meaning profitability improved more sharply than initially expected.” By contrast, revenue in Optical Solutions fell 9% to 941.3 billion won. The decline followed lower sales volumes at Samsung Electronics and Chinese smartphone makers as memory prices rose.

Brokerages expect the shortage of AI components to be difficult to resolve quickly. According to DB Securities, the number of customers with long-term supply agreements (LTAs) for MLCCs surged from around 10 in the second quarter to around 50 in the third. Next year’s demand for the 1005 47 μF product supplied to all major Big Tech companies is expected to reach eight times this year’s level.
Park Kang-ho, an analyst at Daishin Securities, said, “FC-BGA began operating at full capacity in the third quarter, and Samsung Electro-Mechanics has already secured production volumes through 2030 by deciding on capacity expansions in Vietnam and Korea.” He added, “With Murata Manufacturing Co., Ltd., the leading MLCC maker, halting production of general-purpose products, the possibility of price increases for MLCCs used in IT and automotive applications has also grown.”
Record-high earnings are expected to continue in the fourth quarter. Brokerages estimate fourth-quarter operating profit at 856.2 billion to 902.4 billion won, well above the consensus of 702.3 billion won compiled by KB Securities. Next year’s operating profit is estimated at 4.818 trillion to 5.1711 trillion won, more than five times last year’s 913.3 billion won. Daishin Securities raised its 2027 earnings-per-share (EPS) estimate by 45%, while DB Securities and KB Securities raised their forecasts for next year’s operating profit by 26.8% and 17.4%, respectively.
[email protected] Kim Hee-sun Reporter