Sales Growth Accelerating for Automotive Components
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
For SEMCO, ongoing MLCC inventory adjustment in response to sluggish IT device demand is expected to end around 1Q23. In 2H23, earnings improvement should arrive in earnest, helped by smartphone market recovery in China and sales growth for automotive MLCCs. SEMCO shares remain attractive.
MLCC inventory adjustment completed; automotive MLCC sales growth is attractive
We raise our TP on SEMCO from W170,000 to W190,000 on a hike to our earnings estimates and change in valuation base year to 2023, expecting both the end of a somewhat excessive MLCC inventory adjustment cycle and industry recovery backed by greater demand for IT devices in 2H23.
MLCC inventory adjustment has been stronger and longer than predicted due to the overall slowdown in demand for IT devices (including sluggish demand for smartphones in China) and production disruptions due to the re-proliferation of Covid-19. As a result, MLCC shipment in 2H22 fell to the 2016~2017 level.
However, we expect MLCC shipments to expand from 1Q23 and margins to improve in earnest from 2H23, as inventory adjustments are now nearing completion. Although we downwardly revise our sales forecasts to reflect slowdown in the camera module and substrate industries and forex rate effects, we raise our OP forecast by 3% to reflect a 15% hike in our MLCC shipment volume forecast for 2023.
Chinese smartphone market set to improve in 2H23
SEMCO logged 4Q22 OP of W101.2bn (-71.7% y-y, -67.5% q-q), falling short of the market projection. In 1Q23, MLCC shipment should recover slightly, but margins will likely remain similar q-q, affected by margin decline due to lackluster demand for substrates.
Considering China’s recent re-opening and significant room for individual spending expansion, we strongly believe that the Chinese smartphone market will pick up in 2H23. And, SEMCO should be a primary beneficiary.