"Samsung Electro-Mechanics Forecasts 110% Operating Profit Growth Next Year... Target Price Raised" [Click e-Stock]

On June 23, Meritz Securities raised its target price for Samsung Electro-Mechanics from 2.4 million won to 2.8 million won, projecting continued strong profit growth for the company. The investment rating was maintained at 'Buy.'

Seungsoo Yang, a researcher at Meritz Securities, stated, "We are once again raising the fair value of Samsung Electro-Mechanics to 2.8 million won, up 16.7%," adding, "We have revised our assumptions for average selling prices (ASP) for multilayer ceramic capacitors (MLCC) and Ajinomoto Build-up Film (ABF) substrates upward. As a result, we have increased our 2027 operating profit estimate by 6.4%. We have also raised the target price-to-earnings ratio (PER) from 68.9 times to 75.0 times, reflecting the re-rating of industry peers."

Meritz Securities revised its assumption for MLCC ASP growth in 2027 from 27.6% to 31.9%. Yang explained, "Contrary to expectations, general-purpose MLCC prices have started to rise first, and the deepening shortage of ultra-small, high-capacity MLCCs for artificial intelligence (AI) applications is increasing the likelihood of entering a price hike cycle."

Recently, ultra-small, high-capacity MLCCs for AI applications have been facing intensified supply shortages due to increased installation volumes and higher manufacturing complexity driven by an increase in the number of stacked layers. Yang noted, "With supply expansion limited relative to rising demand, competition among clients to secure quantities of these products is intensifying, and there is a high possibility of a price increase cycle similar to what is seen in memory semiconductors. Additionally, the impact of expanding demand for AI infrastructure is spreading to high-capacity MLCCs for smartphones and PCs."

For ABF substrates, large-scale capacity expansion is expected in response to supply shortages. Yang commented, "Over 5 trillion won in combined capital expenditures (Capex) for this year and next are expected to be invested in ABF substrate expansion, with a notable portion being executed based on support funds from customers. This customer-burdened expansion structure will help mitigate Samsung Electro-Mechanics' investment risk, while also supporting customer diversification and improved mid- to long-term demand visibility." Driven by capacity expansion and higher ASPs, Samsung Electro-Mechanics' ABF substrate sales are expected to grow significantly from 1.9 trillion won in 2026 to 2.7 trillion won in 2027 and 4.2 trillion won in 2028.

Meritz Securities forecasts that Samsung Electro-Mechanics' operating profit will reach 3.4 trillion won in 2027 and 5.5 trillion won in 2028, representing year-on-year growth of 110.6% and 64.6%, respectively. Yang commented, "As a representative cyclical company, Samsung Electro-Mechanics has historically faced concerns about peaking out, which have been reflected in the share price even during periods of rising earnings per share (EPS), thus limiting multiple expansion. However, at present, both the MLCC and ABF substrate divisions are seeing extended demand visibility beyond 2028, driven by AI demand. Unlike in the past, this phase is characterized by growing confidence in the sustainability of profit growth. Therefore, even at current share price levels, there is a high likelihood of simultaneous EPS upward revisions and multiple re-rating for Samsung Electro-Mechanics."

This content was produced with the assistance of AI translation services.