Samsung Electro-Mechanics suffers cut in Q3 earnings estimate

South Korea's Kiwoom Securities on Tuesday said it cut its third-quarter earnings forecast for Samsung Electro-Mechanics due to continued sluggish demand for ICT sets, or finished products.

Kim Ji-san, head of the brokerage's research center, in a stock report lowered the forecast for the electronic component maker's third-quarter operating profit 26% year on year from 261.9 billion won ($198.3 million) to 228.9 billion won.

"The trend of performance improvement led by multilayer ceramic capacitors (MLCC) remains unchanged, but its intensity is expected to fall short of projections due to delayed recovery in ICT set demand," he said.

"The recent rise in economic jitters over real estate in China will also negatively impact consumption psyche for ICT sets including Chinese smartphones," he added. "We must lower forecasts for MLCC shipments and sale prices."

The researcher, however, kept a positive outlook for Samsung Electro-Mechanics' long-term performance, maintaining a "buy" rating and target price of 200,000 won.

"MLCCs will gradually increase utilization and profitability after preemptive inventory adjustment," Kim said. "Flip-chip ball grid arrays (FC-BGA) will receive upgrades centered on use in servers and artificial intelligence (AI) graphic processing units (GPU)."

He also called 2023 the "inaugural year" of FC-BGAs, adding, "Samsung Electro-Mechanics' market position will improve in the process of growing demand for AI GPUs."

Write to Eui-Myung Park at uimyung@hankyung.com