J.P. Morgan is bullish on Samsung Electro-Mechanics entering a valuation expansion phase

Overview

This is a company research report on Samsung Electro-Mechanics (009150.KS). The report's core view is that SEMCO's MLCC and substrate businesses are entering a stronger cycle of orders, pricing, and product-mix improvement, while the silicon capacitor business opens a new growth curve. J.P. Morgan believes that improvements in free cash flow and ROE will drive valuation multiple expansion, so it maintains an Overweight rating and raises the target price to W1.45mn.

Core views

The report's key bullish arguments are threefold: first, the silicon capacitor business creates a revenue opportunity of more than US$1bn and could allow SEMCO to expand from a ceramic-capacitor-centric supplier into a fabless solutions provider; second, AI demand is spreading from GPUs to CPUs and ASICs, tightening supply and demand in the ABF substrate industry and supporting price and margin improvement; third, the MLCC pricing cycle has already turned up in automotive, server, and ODM markets, and capacity reallocation into high-end special-purpose MLCCs could further lift distributor-market pricing.

Analysis framework

The report uses segment-level earnings forecasts, cycle comparisons, pricing and supply-demand analysis, and relative valuation methods. On the earnings side, it tracks MLCC, ABF substrate, and silicon capacitor new orders, revenue, margins, and EPS revisions; on valuation, it uses a Jun-27 target price and a 29.5x FTM P/E, with about a 40% premium to the 2016-2018 cycle peak FTM P/E to reflect customer and business diversification as well as a stronger price and margin cycle.

Methodology notes

• Valuation methodsFTM P/E target multiple

  Derive the Jun-27 target price of W1.45mn using 29.5x FTM P/E.

  The report applies 29.5x FTM P/E to the target price framework. This multiple is about 40% above the 2016-2018 cycle peak of 21x, justified by improvements in pricing, margins, customer mix, and business structure over the next three years in MLCC and substrates.

• Earnings forecastEPS revision

  FY26E-28E EPS raised by 5%-25%.

  J.P. Morgan raised its earnings forecasts and notes that its FY26E-28E EPS estimates are 11%-51% above consensus, reflecting the new business, pricing environment, and product-mix improvement.

• Industry cycleSupply-demand and price cycle analysis

  AI demand tightens supply and demand for ABF substrates and MLCC.

  The report believes ABF and MLCC supply and demand could be tighter in 2027E than in 2026E, with a favorable pricing outlook; it also warns that additional supply after 2H28E could become the main risk.

• Business mixProduct mix upgrade

  MLCC shifts toward automotive, industrial, server, and high-end special applications.

  The report believes product-mix upgrades will improve long-term margins and reduce consumer-electronics cyclicality, while the substrate business expands into server and AI-related applications.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Samsung Electro-Mechanics（009150.KS）

  The main covered company in the report, maintained at Overweight with a higher target price.

  Strengths

  Improving MLCC product mix, strong ABF substrate orders, new silicon capacitor business, AI customer demand support, and improving FCF and ROE.

  Weaknesses

  Capex and capital intensity are at high levels, and revenue concentration may rise due to AI customer orders.

  Comparison

  The report says SEMCO's year-to-date gain outperforms Kospi and ranks it as a preferred buy idea in Korean tech hardware coverage.

  Risks

  Intensifying MLCC competition, ASP declines, slower-than-expected Vietnam substrate ramp-up, weaker-than-expected recovery in China's IT MLCC and substrate orders, and supply growth after 2H28E that exceeds expectations.

• Samsung Electronics（005930.KS）

  A company mentioned within the same coverage universe, but not the main covered name in this report.

  Strengths

  Related to the Korean tech hardware and semiconductor supply chain.

  Weaknesses

  The report does not provide a detailed analysis of its business or valuation.

  Comparison

  Listed only within the analyst coverage universe.

  Risks

  The report does not provide specific risks for this company.

• Murata Manufacturing（6981.T/6981）

  One of the main players in the silicon capacitor market, used as an industry reference.

  Strengths

  The report identifies it as one of the main players in the silicon capacitor market.

  Weaknesses

  The report does not provide a detailed financial or valuation analysis.

  Comparison

  As SEMCO enters silicon capacitors, it will compete in the same market as existing suppliers such as Murata.

  Risks

  The report does not provide specific risks for Murata.

• TSMC（2330.TW）

  One of the main players in the silicon capacitor market and mentioned repeatedly in the disclosure.

  Strengths

  The report identifies it as one of the main players in the silicon capacitor market.

  Weaknesses

  The report does not provide a detailed financial or valuation analysis.

  Comparison

  As a new supplier entering the silicon capacitor market, SEMCO joins a market where TSMC is already one of the major players.

  Risks

  The report does not provide specific risks for TSMC.

Key data

• Target priceW1.45mnJun-27 target price, based on 29.5x FTM P/E.
• RatingOverweightJ.P. Morgan maintains SEMCO as a preferred buy idea within Korean tech hardware coverage.
• Silicon capacitor order opportunityUS$1bn+The company announced orders for 2027E-2028E, and the report estimates an OPM of about 20% for the project.
• ABF revenue forecastFY26E W3.2trn to FY28E W6trnThis implies about a 37% CAGR over the next two years, with margins expected to rise from 15% to 26%.
• Component solutions revenue forecastFY28E W12.2trnIncluding the silicon capacitor business, versus W6.6trn in FY26E.
• EPS revisionsFY26E-28E up 5%-25%J.P. Morgan says its forecasts are 11%-51% above consensus.
• Adj. EPS 2026EW18,934Raised by 4.6% from the prior W18,102.
• Adj. EPS 2027EW39,448Raised by 22.7% from the prior W32,141.
• Share price performanceSEMCO YTD +226% vs. Kospi +57%Year-to-date performance cited in the report body.
• Cycle capexFY26E-28E above W10trnCapex intensity is about 19%, near historical highs.

Impact & implications

If the report's view plays out, SEMCO will not only benefit from the traditional MLCC recovery, but also from AI servers, expansion in ASICs and CPUs/GPUs, ABF substrate tightness, and the new silicon capacitor business. Earnings upside, better free cash flow, and higher ROE could support valuation multiple expansion; however, if AI demand weakens, supply expands more than expected, or Vietnam substrate ramp-up is slower than expected, the earnings and valuation story could come under pressure.

Risks

• Intensifying competition in automotive and IT MLCC, leading to ASP declines and margin deterioration.
• Slower-than-expected ramp-up of substrate capacity in Vietnam.
• Weaker-than-expected recovery in China's IT MLCC and substrate orders.
• If AI customer demand weakens unexpectedly, revenue concentration risk could intensify.
• If additional supply after 2H28E exceeds expectations, the current favorable supply-demand and pricing assumptions may reverse.
• FY26E-28E cycle capex above W10trn, with capital intensity of about 19%; if returns fall short of expectations, FCF visibility will be pressured.

What to watch

• The company's official capex plan announcement, to assess FCF generation visibility.
• AI server-grade MLCC and substrate content, specification roadmap, and design win updates.
• 2H26 IT MLCC pricing trends and changes in distributor-market quotations.
• ABF substrate industry supply-demand tightness and pricing adjustment magnitude in 2026E-2027E.
• Silicon capacitor order execution, mass-production timing, and whether the 20% OPM assumption is achieved.
• Whether supply expansion after 2H28E reverses the current price and margin cycle.