MLCC Suppliers’ Earnings: Inventory Correction Bottoms Out; We Revise Results Forecasts

We have revised the earnings forecasts for two multilayer ceramic capacitor, or MLCC, suppliers, maintaining Samsung Electro-Mechanics’ 009150, or Semco’s, fair value estimate at KRW 210,000 and lowering Yageo’s fair value estimate to TWD 670 from TWD 700 because of a slower-than-expected recovery from inventory correction. While Semco’s June quarter revenue was up 9.8% from the previous quarter, Yageo’s revenue was up 2.5%. For the September quarter, Yageo expects revenue to be flat sequentially, while Semco expects mid-single-digit growth. While the sales momentum cannot be easily compared because of different seasonality, we believe that the difference is due to Semco’s auto MLCC business is gaining market share, and Yageo’s prolonged inventory correction of tantalum capacitors. While we believe both shares are undervalued, we prefer Semco to Yageo as we believe Semco’s strong revenue growth momentum will continue for the time being.

Semco’s June-quarter revenue of KRW 2.22 trillion was down 9.6% from the previous year but up 9.8% sequentially and above our forecast of KRW 2.04 trillion. Driven by the rebound in IT demand following the completion of the inventory correction, revenue from the components division and package solution division increased 21.9% and 10.0% sequentially, exceeding our expectations of 12.0% growth and 3.8% decline, respectively. However, we have largely maintained our 2023 revenue forecasts, as we are concerned about the subdued recovery in smartphone shipments. In the longer term, we maintain our view that Semco is best positioned to capture the strong auto MLCC demand. Our fair value estimate for Semco of KRW 210,000 corresponds to 18 times 2024 price/earnings.