Brokerage : Eugene Investment & Securities
Analyst : Lee Joo-hyung
Investment Rating : BUY (Maintained)
Target Price : KRW 590,000 (Raised)
Core Momentum : Mid-to-long term earnings expansion and multiple re-rating projected on the back of potential price hikes driven by AI server MLCC supply shortages and vendor-dominant pricing power in high-end ABF substrates
📊 1. [Valuation & Key Financial Metrics]
- Investment Rating & Target Price: BUY maintained; Target Price raised from KRW 360,000 to KRW 590,000.
- Valuation Methodology: Raised Target P/E multiple from 26.0x to 37.04x (applying a 10% premium to the past 5-year 12MF P/E upper bound) alongside upward revisions to earnings forecasts.
- 1Q26 Earnings Forecast (Preview):
- Revenue: KRW 3.1302 Trillion (+14% YoY, +8% QoQ).
- Operating Profit: KRW 268.5 Billion (+34% YoY, +12% QoQ; slightly below consensus of KRW 281.3 Billion due to one-off costs, though underlying profit is estimated in the KRW 300 Billion range excluding one-offs).
- Annual Financial Projections (2026E – 2027E):
- 2026E: Revenue KRW 12.711 Trillion / Operating Profit KRW 1.456 Trillion (raised from KRW 1.266 Trillion) / Net Profit KRW 1.105 Trillion
- 2027E: Revenue KRW 14.875 Trillion / Operating Profit KRW 2.138 Trillion (raised from KRW 1.599 Trillion) / Net Profit KRW 1.528 Trillion
- Company-wide Operating Profit CAGR: Projected at ~50% through 2028.
- Key Financial Multiples (2026E):
- EPS: KRW 13,796 (+51.6% YoY)
- P/E: 30.2x
- P/B: 3.0x
- ROE: 10.7%
- EV/EBITDA: 12.5x
- Dividend Yield: 0.9%
🚀 2. [Market Opportunities & Business Outlook]
- Component Division (MLCC):
- 1Q26 Component revenue forecast at KRW 1.4542 Trillion (+19.5% YoY) and operating profit at KRW 166.4 Billion (+24.7% YoY).
- Early signs of supply shortages emerging in high-value industrial MLCCs for servers and networks, driven by steady increases in rack-scale server shipments.
- Following Murata’s internal discussions regarding price hikes for high-value MLCC lines, the analyst models double-digit QoQ price increases for industrial MLCCs in 4Q26 and 1Q27, raising 2026 and 2027 division operating profit forecasts by 9.3% and 40.6%, respectively.
- High-value MLCC price increases are evaluated as highly viable due to top-tier CapEx concentration on Non-IT segments, duopoly structure with Murata in AI servers, and rising computing power density in rack-scale systems.
- Package Solution Division (ABF Substrates):
- 1Q26 Package Solution revenue forecast at KRW 657.0 Billion (+31.6% YoY) and operating profit at KRW 58.1 Billion (+155% YoY).
- Upstream raw material price increases (CCL, copper foil) are being more than offset by substrate price increases under vendor-dominant market dynamics for AI/network high-end ABF substrates.
- ABF capacity utilization expected to ramp from the mid-70% range in 2025 to the low-80% range in 1Q26 and reach 90% in 2H26, supported by shipments to new tier-1 clients starting in 2Q26.
- Production capacity through 2027 is fully booked, with potential for large-scale CapEx decisions in 1H26 to address demand beyond 2028.
📝 Editor’s Comment (Perspective)
The analyst views Samsung Electro-Mechanics not merely as a passive component supplier sensitive to consumer IT volatility, but as a critical AI hardware infrastructure partner possessing strong pricing power and duopoly positioning amid surging AI rack-server demand. Rather than focusing on short-term one-off expenses in the first quarter, the analytical thesis places greater strategic emphasis on the pricing leverage in AI server MLCCs and structural margin expansion in high-end ABF substrates where production capacity is already fully committed through 2027.
To assess whether this investment thesis continues to materialize, key tracking points include the potential realization of Murata’s preemptive price hikes and the modeled industrial MLCC ASP increases starting in 4Q26, the volume ramp-up of ABF substrates to new customers from 2Q26 toward 90% utilization in the second half, and the potential formalization of large-scale ABF CapEx expansion decisions in 1H26. These variables can be verified through upcoming quarterly earnings releases, official company IR presentations, periodic regulatory filings (quarterly and annual reports), and DART disclosures.
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