Solid Demand for High-End Components Mitigates the IT Weakness; Semco’s Shares Undervalued

We fine-tuned our earnings forecasts for Samsung Electro-Mechanics, or Semco, and maintain our fair value estimate of KRW 230,000, which corresponds to 14 times 2023 price/earnings and 6 times EV/EBITDA. We retain our view that Semco’s shares are undervalued. We believe Semco’s June quarter results were impressive, showing resilience despite the headwinds, just as we had anticipated in our latest report published in early July. We expect a moderate price decline for commoditized MLCCs, as demand for smartphones and PCs is more sensitive to the economic slowdown, and ongoing inventory correction seems to last at least until the second half of this year. However, solid sales for premium MLCCs underpinned by the demand for autos and industrials will contribute to improve the product mix and maintain the blended ASP for MLCCs. Similarly, in the package substrate business, the supply of package substrates will remain tight because of the wider adoption and the progress of multilayering, and the higher ASP due to the tight supply will more than offset the negative impact of weaker-than-expected set shipments. As such, we believe Semco can benefit from robust high-end demand thanks to its broad product portfolio.