MLCC Suppliers' Earnings: Capacity Utilization To Recover in the Coming Quarters

We continue to believe that multilayer ceramic capacitors, or MLCC, suppliers will gradually increase capacity utilization in the coming quarters. Although the timing of a full recovery in demand for smartphones and PCs remains difficult to predict, we believe that the inventory digestion for smartphones has made significant progress in recent quarters, and therefore orders for MLCCs will gradually approach previous levels. Meanwhile, due to the much lower-than-expected PC shipments, we view that the progress of inventory correction for other electronic components used in PCs has been slower than expected. As a result, we maintain our fair value estimate for Samsung Electro-Mechanics, or Semco, at KRW 210,000, while we lower our fair value estimate for Yageo to TWD 700 from TWD 750 after fine-tuning our earnings forecasts. We continue to believe that both shares are undervalued as MLCC’s midterm growth driven by auto demand is not fully priced in. We prefer Semco over Yageo as Semco’s auto MLCC sales growth is highly likely to outperform the market.