MLCC "UBS Evidence Lab Inside: Inventory volume down, unit price index solid"

Research evidence excerpt

MLCC "UBS Evidence Lab Inside: Inventory volume down, unit price index solid"

sies could arise.

Samsung Electro-Mechanics: We derive our price target from a forward P/BV valuation

method, based on our long-term average ROE and cost of equity assumptions.

We think the key risks for SEMCO include:

1) SEMCO has high customer concentration towards Samsung Electronics (about 50% of

total revenue), so any changes in Samsung Electronics' business outlook or procurement

strategy could pose downside risks. Samsung Electronics is also SEMCO's largest shareholder,

which could pose potential risks from conflict of interest.

2) SEMCO's main competitors for the MLCC business are Japanese companies; hence any

meaningful depreciation of the Japanese yen against the Korean won could lower SEMCO's

price competitiveness and intensify competition.

3) SEMCO is subject to any weakness in end-demand for IT (smartphones, PCs, etc), industrial

and automotive applications.

4) Given the complexity of the global tech supply chain, escalation in trade disputes could

pose downside risks to end-demand and compress valuation multiples. This could also

present different company-specific upside/downside risks depending on the supply chain.

Three Circle: We derive the price target of Three Circle based on P/E valuation method.

We believe major risks for China’s MLCC sector include: 1) undershooting earnings due to

industry inventory correction; 2) oversupply caused by capacity expansion, and earnings

contraction due to price competition; 3) growth of emerging downstream applications may

disappoint the market due to uncertainties; 4) Chinese companies’ competitiveness relative

to Japanese/Korean peers may be sensitive to FX; 5) supply chain stability likely to be

disrupted by tariffs and geopolitics.