Samsung Electro-Mechanics shares fall below W1m for first time in 5½ months

Samsung Electro-Mechanics shares fell below 1 million won ($746) during intraday trading Thursday, the first time the stock has traded below that level since May 20.

According to Korea Exchange, the stock was changing hands at 984,000 won as of 10:25 a.m. Thursday, down 11.75 percent from the previous session.

The selloff was attributed to a sharp deterioration in investor sentiment toward domestic semiconductor stocks and AI component makers, driven by concerns that a sweeping Democratic Party victory in US midterm elections — a so-called "blue wave" — could lead to tighter regulations on AI data center construction.

Samsung Electro-Mechanics had traced a steep upward curve for much of this year, but the stock has come under heavy pressure recently as worries mount over slowing AI profitability.

Through Wednesday, Samsung Electro-Mechanics had gained 337.25 percent on the Kospi since the start of the year, ranking third among all listed stocks — behind Gaon Cable (up 429.61 percent) and Gwangjeonja (up 399.45 percent). Its preferred shares, Samsung Electro-Mechanics Preferred, also rose 234.91 percent, good for fifth place.

Given its market capitalization, the gain was particularly striking, surpassing even the advances posted by Samsung Electronics (up 81.82 percent) and SK hynix (up 114.44 percent) as those companies rode the semiconductor supercycle.

Samsung Electro-Mechanics opened the year at 270,000 won on Jan. 2 and soared to an all-time high of 2.27 million won on June 19. Thursday's drop below the 1 million won mark represented a decline of more than 56 percent from that peak, erasing a substantial portion of the year's gains.

Brokerages, however, remain bullish on the stock. KB Securities holds the highest target price among domestic securities firms at 3 million won — roughly three times the current share price.

Analysts cite a third-quarter earnings surprise despite a sharp drop in the exchange rate, along with a severe supply shortage of key AI server components — including multilayer ceramic capacitors (MLCCs) and flip-chip ball grid array (FCBGA) packages — that continues to push average selling prices higher.

Samsung Electro-Mechanics posted sales of 3.76 trillion won and operating profit of 691 billion won in the third quarter, up 30 percent and 166 percent, respectively, from a year earlier. KB Securities estimates the company will generate sales of 19.3 trillion won and operating profit of 4.9 trillion won next year.

"Key AI-oriented components such as MLCCs and FCBGA packages are enjoying an unprecedented boom, and given the extremely tight supply-demand conditions, further improvement in the industry cycle and upward consensus revisions are expected going forward," said Lee Chang-min, a researcher at KB Securities. "In particular, MLCCs are expected to deliver strong, locked-in earnings based on long-term supply agreements concluded this year."

Park Jun-seo, a researcher at Mirae Asset Securities, maintained a target price of 2.8 million won, saying, "We believe the rise in MLCC prices and the improvement in profitability are just getting started." Park added that Samsung Electro-Mechanics' inventory had fallen to about three weeks' worth, approaching a virtually zero-inventory level, with utilization rates running at full capacity.

"More importantly, the supply shortage could persist through 2028 and 2029," Park said. "If contracts signed this year focused on securing volumes for next year — the most immediate priority — future contracts are likely to increasingly target 2028 and 2029 supply in a preemptive move."