Samsung Electro-Mechanics set for record profits as AI component boom intensifies

Daishin Securities projected on the 3rd that Samsung Electro-Mechanics will post operating profit of 636.3 billion won in the third quarter of 2026, representing increases of 44.5% quarter-on-quarter and 144.5% year-on-year.

The forecast exceeds both Daishin's previous estimate of 613.0 billion won and the market consensus of 596.0 billion won. Revenue for the same period is estimated at 3.866 trillion won, up 11.8% from the prior quarter and 33.8% from a year earlier.

Daishin maintained its Buy rating and target price of 2.8 million won per share. With the stock closing at 1.4 million won on 2nd September, the brokerage sees 100% upside to its target.

The principal driver behind the upgraded forecasts is a deepening supply shortage in two components central to AI servers and data centres: FC-BGA (flip-chip ball grid array) substrates and MLCCs (multilayer ceramic capacitors). Despite a roughly 10% headwind from a stronger won — the average won-dollar exchange rate stood at 1,452 won as of 2nd September — supply constraints in both products more than offset the currency drag. As a result, third-quarter operating margin is expected to reach 16.5%, up 3.8 percentage points from the previous quarter.

In the FC-BGA market, demand from AI chipmakers has outstripped capacity additions, pushing up prices and increasing the proportion of long-term supply contracts. The global supply base is effectively a duopoly, dominated by Japan's Ibiden and Samsung Electro-Mechanics, leaving customers with little alternative. In MLCCs, average selling prices continue to rise on the back of AI and data-centre demand, with utilisation rates high across both automotive and IT applications — conditions that Daishin believes make further price increases increasingly likely.

Samsung Electro-Mechanics has disclosed a succession of long-term MLCC supply agreements this year. These include a silicon capacitor contract worth 1.557 trillion won announced on 20th May, MLCC deals of 454.0 billion won and 295.1 billion won on 30th June and 23rd July respectively, and a further MLCC contract of 1.072 trillion won on 31st August. Cumulative order wins in 2026 now total 1.821 trillion won. Most contracts run through 2027 and 2028, providing meaningful visibility over the medium term.

Annual estimates have also been revised upward. Daishin raised its 2026 full-year operating profit forecast for Samsung Electro-Mechanics by 2.3%, from 1.966 trillion won to 2.011 trillion won. It projects operating profit of 3.303 trillion won in 2027 and 3.983 trillion won in 2028, representing year-on-year growth of 64.2% and 20.6% respectively.

By division, third-quarter revenue from the Package Solutions business — which includes FC-BGA — is forecast to surge 58.3% year-on-year to 939.0 billion won. The Component Solutions segment, centred on MLCCs, is expected to generate revenue of 1.983 trillion won, a 43.6% increase over the same period.

These projections suggest that Samsung Electro-Mechanics has entered a sustained high-growth phase in AI-related components. The stock's absolute return over the past twelve months stands at 724%, with the share price more than tripling so far this year alone. Its 52-week high of 2.27 million won remains well above the current price.

Investors should nonetheless weigh several risks. The stock trades at 71.2 times 2026 earnings on current prices, a demanding valuation. If the AI investment cycle cools faster than expected, or if American big-tech companies accelerate the development of proprietary chips and reduce purchases of external components, earnings forecasts could unravel. Currency movements add another layer of uncertainty: a sustained appreciation of the won could partially erode the profitability gains from higher-value products.

The competitive landscape warrants attention, too. Japan's Murata — the world's largest MLCC maker — is actively pursuing additional orders in the segment. And while Samsung Electro-Mechanics is currently running at full capacity in both FC-BGA and MLCCs, the possibility of an inventory correction cannot be ruled out should AI demand peak sooner than anticipated.

Park Kang-ho, the analyst at Daishin Securities covering the stock, expects Samsung Electro-Mechanics to set successive quarterly records for both revenue and operating profit beyond the third quarter, and retains the company as his top pick within the electrical and electronics sector.