Capacitor Suppliers’ Earnings: Inventory Correction Bottoms Out; Auto Demand Drives Long-Term Growth

We have revised our earnings forecasts for two suppliers of multilayer ceramic capacitors, maintaining our fair value estimate for Samsung Electro-Mechanics, or Semco, at KRW 210,000 and lowering our fair value for Yageo to TWD 670 from TWD 700 as a result of a slower-than-expected recovery from an inventory correction. While Semco’s June quarter revenue was up 9.8% from the previous quarter, Yageo’s was up 2.5%. For the September quarter, Yageo expects revenue to be flat sequentially, while Semco expects mid-single-digit growth. While different seasonality makes sales momentum difficult to compare, we believe the difference is due to Semco’s auto MLCC business gaining market share and Yageo’s prolonged inventory correction of tantalum capacitors. While we believe shares of each company are undervalued, we prefer Semco to Yageo as we believe Semco’s strong revenue growth momentum will continue for the time being.