Morgan Stanley has replaced Samsung Electronics with Samsung Electro-Mechanics (009150.KS) as its top pick among Korean technology stocks, citing expectations that expanding investment in artificial intelligence data centers will lift the component maker's earnings power.
The investment bank raised its price target on the stock to 2.62 million won from 2.56 million won, roughly 96% above its closing price on the 12th. Morgan Stanley kept its "Overweight" rating while newly designating Samsung Electro-Mechanics as its favorite among domestic tech names, replacing Samsung Electronics, according to financial investment industry sources on the 13th.
The bank said Samsung Electro-Mechanics' margins and earnings per share would beat market estimates, pointing to rising prices for multilayer ceramic capacitors (MLCCs) and improving demand for Ajinomoto Build-up Film (ABF) substrates.
Samsung Electro-Mechanics closed at 1.335 million won on the 12th, up 73,000 won, or 5.78%, from the previous session. Its market capitalization stood at 99.72 trillion won, the fifth-largest on the KOSPI. The stock, which had surged to 2.27 million won on a closing basis on June 19, has fallen 41.2% in less than two months. Despite the recent correction, Morgan Stanley appears to have concluded that the company's growth prospects are not fully reflected in the current share price.
At the center of the case is investment in AI data centers. The bank said hyperscalers are keeping component demand high, prompting even non-AI customers to move up their orders to secure supply. Morgan Stanley expects such advance ordering to support MLCC prices from the second half of this year through next year.
It also projected that the company's business mix would shift quickly toward AI. AI-related businesses will account for 31% of Samsung Electro-Mechanics' total revenue next year, up from 20% this year, the bank estimated, with AI revenue itself more than doubling. As higher-margin AI products take up a larger share, the bank said, an earnings structure that once swung with the economic cycle could shift to a phase of stable growth.
ABF substrates are cited as another growth driver. Having secured orders for AI chip substrates from U.S. application-specific integrated circuit (ASIC) makers, Samsung Electro-Mechanics plans to expand operations at a new plant in Vietnam through 2028. Morgan Stanley said the company's ABF revenue could grow to four to five times its current level by 2030.
The bank noted that Samsung Electro-Mechanics' estimated 2028 price-to-earnings ratio of 18 is below its past peak of 30, arguing that stronger EPS growth than in the past leaves room for a valuation re-rating. The new target of 2.62 million won applies an estimated 2028 P/E of 33. Morgan Stanley kept its bull-case target at 3 million won and, reflecting share-price volatility, cut its bear-case target to 1.35 million won.
