MLCC Suppliers: Semco Hit by Price Competition, While PC Recovery Benefits Yageo

After revising our earnings forecasts, we have lowered our fair value estimate for narrow-moat Samsung Electro-Mechanics to KRW 200,000 per share from KRW 210,000 and raised our fair value estimate for no-moat Yageo to TWD 750 per share from TWD 670. We are concerned that the price erosion of multilayer ceramic capacitors, or MLCCs, will intensify, which will affect Semco more. On the other hand, we believe that the impact of MLCC price erosion is limited for Yageo, and that the company will benefit more from the recovering demand for tantalum capacitors, driven by the pickup in PC replacement demand in late 2024. Longer term, we maintain our view that passive component suppliers, including Semco and Yageo, will continue to benefit from the secular growth in smartphones, autos, and servers. Although we will be cautious on Semco’s profitability over the next few quarters, we believe both stocks are undervalued.