[Edaily Reporter Kim Kyung-eun ] On the 7th, DS Investment & Securities raised its target price for SamsungElectroMechanics(009150)by 62.5% from 1.6 million won to 2.6 million won, citing expectations that the company will post third-quarter earnings that exceed market expectations. The firm maintained its “Buy” rating. Compared to the previous day’s closing price of 1,675,000 won, the stock has upside potential of 55.2%.

Cho Dae-hyung, an analyst at DS Investment & Securities, stated in a report released today, “Even amid an unfavorable exchange rate environment, earnings are expected to exceed the recently raised consensus,” adding, “Given that estimates are expected to be revised upward every quarter, now is the time to take a ‘Buy’ position.”

SamsungElectroMechanics’ third-quarter revenue is projected to reach 3.8728 trillion won, a 34.1% increase year-over-year, while operating profit is expected to surge 150.3% to 651.6 billion won. The operating profit figure exceeds the market consensus of 621.4 billion won by 4.9%. Compared to the previous quarter, revenue is expected to rise 12.0% and operating profit 48.0%.

The improvement in earnings is driven by the Components division, which handles multilayer ceramic capacitors (MLCCs), and the Package Solutions division, which handles semiconductor substrates. Analysts predict that an improved product mix resulting from an increased share of high-value-added products, along with the effects of price hikes, will offset the burden caused by the decline in the won-dollar exchange rate.

In particular, third-quarter revenue for the Components division is projected to reach 2.0035 trillion won, a 45.1% increase year-over-year, with operating profit expected to be 416.7 billion won. The operating profit margin is forecast to rise to 20.8%, up 7.7 percentage points from 13.1% in the same period last year. Revenue in the packaging division is also forecast to rise 56.6% to 928.7 billion won, with the operating profit margin expected to climb to 21.8%.

Analysts note that MLCC supply is becoming tight due to production capacity being strained by the expanding share of high-value-added products. Customers are also continuing to take preemptive steps to secure supplies. SamsungElectroMechanics recently secured an additional contract worth 285.6 billion won, bringing its total long-term MLCC supply contracts to approximately 2.4 trillion won to date. The company also anticipates sequential price increases for direct-supply customers in the second half of the year.

The report also assessed that the FC-BGA (Flip Chip Ball Grid Array) substrate market is entering a supplier-dominated phase. This is because approximately 80% of the massive FC-BGA production line investments—estimated to exceed 9 trillion won—are believed to be in the form of subsidies from customers. As the share of large-area products, such as high-performance central processing units (CPUs), increases, the impact on production capacity is expected to grow.

Daol Investment & Securities raised its operating profit forecasts for SamsungElectroMechanics for this year and next year to 2.1062 trillion won and 3.8362 trillion won, respectively, representing increases of 6.7% and 23.7% from previous estimates. The firm projected that operating profit this year will rise 130.6% year-over-year, followed by an 82.1% increase next year.

Analyst Cho stated, “A premium is justified for a company that has established a solid foothold in the two key segments—MLCCs and FC-BGAs—where bottlenecks are most severe,” adding, “The fundamentals have become even stronger.”