[Edaily Reporter Kim Kyung-eun ] On the 29th, Korea Investment & Securities revised upward its operating profit estimates for SamsungElectroMechanics(009150)from this year through 2028, noting that earnings growth driven by expanding demand for high-value-added products for artificial intelligence (AI) data centers is proving steeper than expected. However, it lowered the target price to 2.2 million won to reflect the decline in valuations of comparable companies. The firm maintained its “Buy” investment rating and “Top Pick” designation.

Hwang Jun-tae, an analyst at Korea Investment & Securities, stated in a report released today, “Rather than the technical decline in the target price due to falling multiples, what deserves attention is the continued sharp upward revision of earnings estimates,” adding, “Given the rapid growth in demand for AI-related products, the likelihood of further upward revisions to estimates is high.”

SamsungElectroMechanics’ third-quarter consolidated revenue reached 3.8 trillion won, up 8.9% from the previous quarter and 30.3% year-over-year. Operating profit rose 56.9% quarter-over-quarter to 691 billion won, exceeding market expectations by 7.1%. The operating profit margin stood at 18.4%.

Despite the negative impact of a weaker won against the dollar, improved earnings were driven by an increased revenue share from high-value-added multilayer ceramic capacitors (MLCCs) for AI data centers and flip-chip ball grid array (FC-BGA) substrates. Analysts attribute this to the full reflection of product price increases amid tight supply conditions.

In particular, the average selling price (ASP) of MLCCs in the third quarter is estimated to have risen 11.5% quarter-over-quarter, driven by an improved product mix and price hikes. For FC-BGA, revenue is analyzed to have increased by 28.7% compared to the previous quarter, as the growing share of high-value-added products for servers coincided with price increases.

Profit growth is expected to accelerate further in the fourth quarter. Korea Investment & Securities projected SamsungElectroMechanics’ fourth-quarter revenue at 3.9 trillion won and operating profit at 855.3 billion won—representing increases of 2.8% and 23.8%, respectively, compared to the previous quarter. The firm forecast that the operating profit margin would rise to 22.1%.

As the effects of price increases for MLCC direct-sales customers take hold, the share of high-value-added products for AI applications is also expected to expand. The average selling price (ASP) of MLCCs in the fourth quarter is projected to rise 14.2% from the previous quarter, marking the highest growth rate of the year. The revenue share of AI-use MLCCs is estimated to rise to the mid-30% range, and the operating profit margin of the Components Business Division is projected to reach 28%.

The medium- to long-term growth outlook is also bright. Demand for the “1005 47μF”—a flagship AI MLCC product—is expected to increase approximately eightfold by 2027 compared to this year. Sales of MLCCs for optical modules are also projected to grow more than threefold next year. Analysts predict that the introduction of 800-volt (V) power systems in data centers will generate new demand for high-voltage MLCCs rated at 1 kilovolt (kV) or higher.

FC-BGA is expected to drive revenue growth starting in 2028, when the effects of expanded production capacity become fully realized. The outlook is that MLCCs will lead earnings growth next year, followed by FC-BGA in 2028, sustaining a trend of profit growth over the medium to long term.

Accordingly, Korea Investment & Securities has revised upward its operating profit estimates for SamsungElectroMechanics by 10.4% for this year, 15.4% for 2027, and 15.8% for 2028, respectively. The downward revision of the target price reflects the fact that the expected price-to-earnings ratio (PER) for the comparable company, Japan’s Ibiden, for fiscal year 2028 has been lowered from 37x to 27x.

Analyst Hwang stated, “SamsungElectroMechanics emphasized that supply is tight for both MLCCs and FC-BGAs,” and predicted that earnings will continue to improve as a result of future production capacity expansions and an increasing share of high-value-added products.