Shares Trading at a Historical Low
The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com. -- Ed.
SEMCO shares are trading at a historical low due to concerns over shipment slowdown stemming from sluggish smartphone demand, the performance limitations of a customer’s product, and MLCC inventory burden at clients. We attractively view SEMCO’s current share price, given expectations for a gradual industry recovery in 2H22, brisk substrate industry conditions, and the rising competitiveness of its AR technology.
Most negatives already reflected; shares remain attractive from mid/long-term perspective
SEMCO shares are trading at a historical low due to a variety of concerns, including a slowdown in smartphone shipments in Greater China amid sluggish demand, the performance limitations of a customer’s product, inventory adjustments at clients, and potential MLCC price cuts. However, given expectations for gradual industry improvement in 2H22, booming substrate industry conditions, and the competitiveness of the firm’s AR (extended reality) technology, we view SEMCO’s current share price as representing a low-priced buying opportunity from a mid/long-term perspective.
For Chinese smartphone makers, shipments continue to slow, affected by sluggish demand in the Indian and Southeast Asian markets stemming from the impact of Covid-19 and market share expansion for the iPhone in China and Europe. In addition, sales are proving tepid for the flagship product of SEMCO’s strategic client due to unexpected product performance limitations, which presents a negative for SEMCO’s earnings.
Reflecting the above, we slightly trim our module and component business earnings forecasts. For the MLCC business, we slightly cut our quantity and price estimates in consideration of inventory burden for downstream channels/set makers. We estimate SEMCO’s 2022 OP at W1.56tn (+5.4% y-y), which is 7.2% under consensus.
Significantly undervalued despite conservative earnings estimates
Despite weaker-than-expected industry conditions and various negative factors, we believe that SEMCO is undervalued. The firm is currently trading at a 40% discount compared to major global competitors (Taiyo Yuden, Sunny Optical), and its share price is positioned at the bottom of its historical valuation band.
We expect SEMCO’s share price to rise in earnest in 2H22, when improving smartphone demand, brisk substrate business, and the firm’s competitiveness in wave guide module technology (a core AR technology) should be spotlighted. Accordingly, we view the current share price, which reflects most negative news flow, as being very attractive from a mid/long-term perspective.