How far will Samsung Electro-Mechanics' sprint go? | Kim Min-kyung, Senior Researcher, Hana Securities Research Center

Summary

Kim Min-kyung, Senior Researcher at Hana Securities, explains the strong outlook for Samsung Electro-Mechanics and the Korean substrate sector. She highlights an MLCC price upcycle fueled by AI data center demand, a long-term supply contract, and limited competition. She recommends a basket approach to substrate stocks, including LG Innotek, Daeduck Electronics, and Simmtech, benefiting from spillover effects and potential memory substrate shortages.

• AI data center demand is driving an MLCC price upcycle for Samsung Electro-Mechanics with a new multi-year supply contract.
• Only Murata and Samsung Electro-Mechanics supply the low-voltage MLCC used near GPUs, limiting competitive entry.
• Margins can improve from ~13% toward 40% as in past cycles, but this cycle may last longer due to B2B AI demand.
• The FCBGA substrate sector is experiencing supply tightness, creating spillover benefits for mid/small-cap names.
• LG Innotek is a late entrant in server substrate and can gain multiples as it completes qualification.
• Daeduck Electronics is poised for a memory package substrate shortage as no capacity has been added since the last cycle.
• A substrate basket investment (Samsung Electro-Mechanics, LG Innotek, Daeduck Electronics, Simmtech) is recommended.