Solid Market Conditions for Both MLCC and Substrate
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
Going forward, we expect SEMCO’s camera module earnings to improve in line with strong sales of a client’s foldable smartphone models. And, as an MLCC player, SEMCO is to benefit from production disruptions at competitors. Despite sound earnings and favorable industry conditions, SEMCO’s share price is attractively undervalued versus Japanese peers.
To benefit from foldable smartphones and rivals’ MLCC production disruptions
We now expect SEMCO’s camera module earnings to exceed our previous estimates, drawing attention to a recent increase in sales of foldable smartphones at its strategic customer. And, additional benefits are likely when considering intensifying production disruptions at global MLCC competitors Murata and Taiyo Yuden. Given favorable market conditions for both MLCC and foldable smartphones, we view SEMCO’s current share price as being attractive.
With SEMCO’s strategic customer showing unexpectedly strong sales of foldable smartphone models as of late, we expect the client’s foldable smartphone shipments to continue expanding. Supplying high value-added camera modules for use in these foldable smartphones, SEMCO is seeing an increase in related sales. Also boding well are expectations that that camera module specifications will be upgraded over the mid/long term.
Looking at MLCC industry conditions, tight supply is expected to continue for now on recent production disruptions at some global players. Of note, both Murata’s Fukui plant in Japan (which accounts for 20~30% of Murata’s MLCC production capacity) and Taiyo Yuden’s Malaysia plant (10~15% of Taiyo Yuden’s MLCC production capacity) have been shut down.
Share price undervalued given favorable earnings estimates and industry conditions
Upwardly adjusting our previous estimates, we now expect SEMCO to enjoy consensus-topping 3Q21 consolidated OP of W414.3bn (+37% y-y, +22.1% q-q; OPM of 16.3%), backed by: 1) increasing foldable smartphone shipments at its strategic customer; and 2) solid market conditions for both MLCC and substrate.
Over the mid/long-term, we believe that the MLCC industry will display sound earnings in line with steady demand growth at downstream industry companies such as IT, 5G, and electronic device players. Given recent hikes in share prices for Japanese MLCC producers, we view SEMCO’s shares as being undervalued.