Brokerage : DS Investment & Securities
Analyst : Dae-hyung Cho
Investment Rating : BUY (Maintained)
Target Price : KRW 350,000 (Raised)
Core Momentum : Upward revisions to 2026 earnings projections driven by 4Q25 earnings beat, AI MLCC shortages from rack-scale server adoption, and expected full capacity utilization in FC-BGA in 2H26
📊 1. [Valuation & Key Financial Metrics]
- Investment Rating & Target Price: BUY maintained; Target Price raised to KRW 350,000 (Upside: 28.7% vs. current price of KRW 272,000).
- 4Q25 Provisional Earnings Review:
- Revenue: KRW 2.9021 Trillion (+17.3% YoY, +0.5% QoQ, +2.2% vs. consensus of KRW 2.8403 Trillion).
- Operating Profit: KRW 239.5 Billion (+108.2% YoY, -8.0% QoQ, OPM 8.3%, beating recently raised consensus of KRW 228.5 Billion by 4.8%).
- Key Highlights: Solid operating leverage driven by intensifying AI benefits across Component and Package Solution divisions, supported by favorable FX conditions.
- Annual Financial Projections (2025F – 2026F):
- 2025F: Revenue KRW 11.3143 Trillion / Operating Profit KRW 913.3 Billion / Controlling Net Profit KRW 701.0 Billion
- 2026F: Revenue KRW 12.7070 Trillion (+4.2% upward revision, +12.3% YoY) / Operating Profit KRW 1.2791 Trillion (+16.8% upward revision, +40.1% YoY) / Controlling Net Profit KRW 1.1230 Trillion
- 2026F Financial Outlook by Business Division:
- Component: Revenue KRW 5.9450 Trillion (+14.4% YoY), Operating Profit KRW 813.1 Billion (OPM 13.7%)
- Package Solutions: Revenue KRW 2.8263 Trillion (+22.8% YoY), Operating Profit KRW 305.1 Billion (OPM 10.8%)
- Optics & Communication: Revenue KRW 3.9357 Trillion (+3.2% YoY), Operating Profit KRW 161.0 Billion (OPM 4.1%)
- Key Financial Multiples (2026F):
- EPS: KRW 15,370 (+60.6% YoY)
- P/E: 17.7x / P/B: 2.1x
- ROE: 11.6% / EV/EBITDA: 8.9x
🚀 2. [Market Opportunities & Business Outlook]
- Component Division (MLCC):
- 4Q25 Component revenue posted KRW 1.3203 Trillion (+22.1% YoY). Maintained solid growth centered on automotive and industrial demand despite seasonal IT inventory adjustments, with Blended ASP rising QoQ and utilization exceeding 90%.
- High-value MLCC entering practical shortage conditions as content per unit surges with accelerated adoption of Rack-Scale architectures over traditional single-server setups.
- Broadening application into automotive and humanoid robotics expected to keep capacity at full utilization throughout 2026, sustaining stable Blended ASP.
- New Philippine plant aims for mass production by late 2027, underpinning steady expansion through gradual annual CapEx additions.
- Package Solution Division (FC-BGA & BGA):
- 4Q25 Package revenue recorded KRW 644.6 Billion (+17.4% YoY), driven by expanding shipments of server/automotive FC-BGA and mobile AP SiP substrates.
- Full capacity utilization expected in 2H26 on market share gains with existing Big Tech clients and the acquisition of new customers.
- Company is reviewing capacity expansion targeting commercial production by late 2028; BGA growth is also anticipated from expanding shipments of MLCC-embedded substrates.
- Additional Growth Catalysts:
- Visible progress in supplying camera modules for humanoid robotics.
📝 Editor’s Comment (Perspective)
The analyst views Samsung Electro-Mechanics not merely as a conventional cyclical parts manufacturer constrained by consumer IT demand concerns, but as a critical AI hardware platform partner capturing structural shortages and operating leverage across core divisions as AI rack-scale architectures and new applications (automotive, robotics) expand. The analytical thesis places greater strategic significance on the 4Q25 earnings beat during a seasonal trough, the continuation of 90%+ utilization in MLCCs entering practical shortages, and the customer base expansion driving FC-BGA toward full capacity in 2H26, rather than short-term share price pullbacks.
To assess whether this investment thesis continues to materialize, key tracking points include the sustained expansion of Blended ASP in high-value MLCCs driven by Rack-Scale adoption, FC-BGA achieving full capacity utilization in 2H26 on new customer volume ramp-ups, and official announcements regarding FC-BGA CapEx targeting 2028 alongside achieving the projected 2026 annual operating profit (KRW 1.28 Trillion). 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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