AI Server Demand And Advanced Automotive Electronics Ignite Revenue Growth

Key Takeaways

• Expansion in automotive and AI sectors, alongside innovations in silicon capacitors and solid-state batteries, positions growth through diverse revenue streams.
  
• Successful production ramp-up in Vietnam and strong demand for high-end products support anticipated revenue gains in server and AI markets.
  
• Slowing demand, currency strength, and external uncertainties could negatively impact Samsung Electro-Mechanics' financial stability, revenues, and profitability across various product lines.

Catalysts

Manufactures and sells various electronic components in Korea, China, Southeast Asia, Japan, the Americas, and Europe.

• The automotive segment's revenue is expected to grow due to increasing electronic content in vehicles, such as ADAS and infotainment systems, driving demand for specialized products like high-temperature, high-capacitance MLCCs, which could positively impact revenue and margins.
  
• The company's focus on expanding supply of high-end flip chip BGA for server and AI applications is expected to benefit from solid demand, possibly leading to increased revenue and earnings growth.
  
• New business developments, including silicon capacitors, hybrid lens for automotive cameras, and solid-state batteries, are anticipated to begin mass production and expand customer supply within the next couple of years, potentially driving future revenue growth and diversification.
  
• The Vietnam plant is successfully ramping up production of high-end flip chip BGA substrates, which supports expectations for revenue growth in the server and AI accelerator markets by leveraging stabilized mass production capabilities.
  
• AI servers present opportunities for increased MLCC requirements due to higher performance demands, positioning SEMCO for significant revenue growth as high-performance, small-size, ultra-high-capacitance MLCCs capture this expanding market.

Samsung Electro-Mechanics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Samsung Electro-Mechanics's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 8.4% in 3 years time.
• Analysts expect earnings to reach ₩1052.3 billion (and earnings per share of ₩14392.2) by about December 2027, up from ₩510.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₩729.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.9x on those 2027 earnings, down from 17.7x today. This future PE is lower than the current PE for the KR Electronic industry at 26.2x.
• Analysts expect the number of shares outstanding to decline by 1.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.33%, as per the Simply Wall St company report.

Samsung Electro-Mechanics Future Earnings Per Share Growth

Risks

• The slowdown of demand in key downstream industries and a stronger Korean won may negatively impact revenue and net profit margins.
  
• The seasonal weakness and year-end inventory adjustments are projected to result in a reduction of demand for products like MLCCs and camera modules, which can affect quarterly revenues and earnings.
  
• A decrease in IT camera module sales despite high-spec mass production indicates market share loss or reduced demand, posing risks to future revenues and profit margins.
  
• External uncertainties, such as global trade disputes, geopolitical tensions, and foreign exchange volatility, could negatively impact financial stability, revenue, operating profit, and earnings consistency.
  
• The leveling off of EV market growth might impact the automotive component business's expansion, potentially affecting the division’s revenue contribution and long-term profitability.

Valuation

• The analysts have a consensus price target of ₩180214.29 for Samsung Electro-Mechanics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩224000.0, and the most bearish reporting a price target of just ₩125000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₩12519.3 billion, earnings will come to ₩1052.3 billion, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 8.3%.
• Given the current share price of ₩119300.0, the analyst's price target of ₩180214.29 is 33.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.