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The author is an analyst of NH Investment & Securities. He can be reached at kyuha.lee@nhqv.com — Ed.

With overall IT device demand in China proving stronger than expected, it appears that the MLCC industry has entered a full-fledged recovery phase, backed by growing demand for automotive electronics and AI industry components. Seeing prospects for additional demand improvement, we expect the industry recovery to further strengthen in 2H23. Against this backdrop, SEMCO shares offer solid upside potential.

IT demand strong in China; automotive electronics growth positive

In China, IT device demand, which accounts for a large portion of SEMCO’s recent sales, is proving stronger than feared. With e-commerce companies having implemented massive subsidy policies from March, product prices have decreased tangibly overall. In addition, smartphone and PC sales increase is being further stimulated by economic reopening and the official adoption of Esports at the Hangzhou Asian Games, respectively.

In 2H23, the recovery in demand for IT devices is likely to strengthen further, helped by both the launch of the iPhone 15 series, which is set to receive significant hardware upgrades, and enhanced promotional efforts by IT set makers aiming to capitalize on deferred demand and peak seasonality.

Also positive, SEMCO’s solid growth trajectory remains intact thanks to its diversification of products and customers in the automotive MLCC market. Having expanded its global market share from fifth to third (behind Murata and TDK), SEMCO has recently started supplying MLCCs for powertrains (high value-added products) to North American EV makers. We expect the firm’s rapid growth to continue in the future.

Now at start of MLCC recovery cycle; share price still attractive

Following large-scale inventory adjustments in fear of slowing demand due to a macroeconomic slump, strong demand for IT devices is emerging, with demand expanding into a range of industries such as automotive electronics and AI, which is fueling hopes for a faster-than-expected MLCC recovery cycle. Considering the usual cycle length of around one to one and a half years or more, now is likely just the beginning.

A full-fledged industry improvement phase is expected to be confirmed in 2Q23, with MLCC supply-demand conditions to tighten significantly from 2H23. Bolstered by improving demand and recovering MLCC margins, SEMCO’s share price is predicted to level up once again. At present, the shares are still attractive.




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