Author: Rita
Tide's Guide
Morgan Stanley just raised its target price for Samsung Electro-Mechanics from 920,000 KRW to 2,560,000 KRW. Analysts are rewriting the story of MLCC (Multi-Layer Ceramic Capacitors) from a cyclical industry to one with structural growth. The core logic is straightforward: the hunger of AI servers for MLCCs is 10 to 15 times higher than that of traditional servers.
AI Ignites "Volume and Price Simultaneous Increase"
One AI server requires 440,000 MLCCs. A traditional server? 30,000. A difference of over ten times.
This isn't just about quantity. AI's demands on MLCCs are also upgrading: higher capacitance, smaller size, lower ESL and ESR. It's evolving from competing on quantity to competing on quality, pushing ASP (Average Selling Price) up. Morgan Stanley says that Samsung Electro-Mechanics' MLCC business will contribute 15% of its revenue by 2026, and this proportion jumps directly to over 50% by 2030. Behind this is improved pricing power, leading to genuine profit expansion.
Supply Constraints Are Now Structural, Not Cyclical
This round resembles the MLCC supercycle of 2017 to 2018, but the underlying logic is completely different. That time was short-term mismatch due to inventory shortages and order surges. This time, capacity ceilings are meeting continuously growing new demand.
High-end MLCC production lines have long been fully booked, and building new lines takes two years to become operational. The low inventory levels in the supply chain have now spread from the spot market to contract prices, with distributors starting to hoard, indicating they no longer see this as a temporary shortage.
Morgan Stanley expects MLCC prices to rise by 30% in the second half of 2026, and another 30% to 50% in 2027. This isn't a futures trader's forecast, but a conclusion based on contract prices and distributor behavior visible right now.
Why Samsung Electro-Mechanics is the Biggest Beneficiary
Samsung Electro-Mechanics' benefits come from three dimensions.
The first is direct MLCC price increases. IT-use MLCCs are rising, AI-use MLCCs are rising, and the AI segment offers even thicker margins. When the 1Q26 earnings report came out, revenue already exceeded expectations: 3.2 trillion KRW vs. 3.1 trillion KRW expected. More importantly, Morgan Stanley raised its EPS forecasts for the next three years, with the FY27E figure reaching 55,477 KRW, 71% higher than before. Operating profit margin is expected to jump from the current 15.7% to 24.5% in 2027, and then to 25.9% in 2028. This isn't a numbers game; it's genuine profit expansion from enhanced pricing power.
The second is ABF substrates. AI customer orders for ASIC chips are already saturated, and Samsung Electro-Mechanics' shipments and profits in this area are growing rapidly.
The third is new product lines. Silicon capacitors have secured $1.3 billion in orders, and glass substrates have begun trial production. These won't contribute to revenue this year or this month, but they set the stage for the coming years.
Can ROE Really Jump from 7.5% to 32.2%?
Morgan Stanley assumes that Samsung Electro-Mechanics' ROE (Return on Equity) will rise from 7.5% in FY25 to 17.3% in FY26, and then to 32.2% in FY28. Simultaneously, the company's dividend payout ratio will increase from the current 5% to 20%.
This means a Korean electronic components company, whose ROE was already not low, could enter a higher profit cycle due to changes in product mix and pricing power. The current valuation is 1.4x P/B (Price-to-Book ratio), lower than the historical average of 1.7x. Raising the target price from 920,000 to 2,560,000, an increase of nearly 178%, isn't solely due to net profit growth; there is also room for valuation re-rating.
Identifying the Risks
Upside risks: MLCC prices are forced to rise significantly further due to genuine shortages; smartphone demand rebounds beyond expectations; Chinese government consumption stimulus policies bring additional demand.
Downside risks: Samsung Electronics' flagship smartphone cycle declines significantly (Samsung Electro-Mechanics still has a considerable proportion of consumer products); poor execution in expanding business with Chinese smartphone clients; weak global consumer demand.
Catalysts? Further increases in contract prices, continued rise in the Book-to-Bill ratio, capacity utilization nearing full load, and confirmation of MLCC content growth by next-generation AI platforms (Rubin, VR200).
The New AI Infrastructure Darling
From side dish to main course, from cyclical to structural, from traditional capacitor maker to AI infrastructure supplier. This is the story Morgan Stanley is telling for Samsung Electro-Mechanics. How long the story lasts depends on how AI chip demand, capacity construction, and competitive landscape evolve. But for now, supply constraints are indeed supporting prices, and price increases are supporting profits.
Disclaimer
This article is Tide Research's compilation and interpretation of a third-party securities firm's research report. The ratings, target prices, profit forecasts, and related judgments cited herein are the views of Morgan Stanley analysts, representing only the stance of their affiliated institution. They do not represent the views of Tide Research, nor do they constitute any investment advice.
Please note three points when reading: 1. Target prices are analysts' expectations for the next approximately 12 months; they are forecasts, not promises, and will be adjusted repeatedly based on performance and market conditions. 2. Sell-side research reports are naturally biased toward optimism, and some covered companies may have investment banking relationships with the reporting firm. 3. The value of a research report lies in its core logic and underlying assumptions, not just a single target price. Focus on the logic, not just the price.
The market carries risks; decisions should be made independently. This article should not be used as a basis for buying or selling any securities.
Data Sources: Samsung Electro-Mechanics 1Q26 Earnings Report (SEC and other public data) · Morgan Stanley Research Report (Shawn Kim et al., June 22, 2026)
Tide Research · TideResearch · June 2026
