Morgan Stanley has switched its top pick in the South Korean stock market to Samsung Electro-Mechanics (009150.KS) from Samsung Electronics (005930.KS). The firm kept its "overweight" rating on Samsung Electro-Mechanics and raised its price target to 2.62 million won from 2.56 million won.
Morgan Stanley named Samsung Electro-Mechanics its new top pick, citing the potential for stronger prices in multilayer ceramic capacitors (MLCCs) and a recovery in demand for Ajinomoto build-up film (ABF) substrates, according to the financial investment industry on the 12th.
The firm expects the company's margins and earnings per share (EPS) to exceed market consensus by a wide margin.
At the center of this outlook is investment in artificial intelligence (AI) data centers. Component demand, driven mainly by hyperscalers, has remained persistently strong, and even customers with no direct link to AI have begun to feel anxious about securing parts, according to the analysis.
As a result, customers are placing orders ahead of time, and the period over which demand can be forecast is lengthening. Morgan Stanley expects this trend to support MLCC prices from the second half of this year through next year.
The firm also gave a positive assessment of the shift in Samsung Electro-Mechanics's business structure. The share of AI-related businesses in total revenue is expected to expand to 31% in 2027 from 20% in 2026. As AI-related revenue more than doubles, growth in both revenue and profit could strengthen further, the analysis said.
In particular, as the share of high-margin AI products grows, the company could move away from a structure in which profits swing sharply with the economic cycle and toward more sustained profit growth, the firm said. This could also lead to a higher valuation for Samsung Electro-Mechanics.
The ABF business was also cited as a major growth driver going forward. Samsung Electro-Mechanics has secured multiple orders for AI chip substrates from U.S. application-specific integrated circuit (ASIC) makers and plans to expand production capacity at a new plant in Vietnam through 2028.
On that basis, Morgan Stanley forecast that Samsung Electro-Mechanics's ABF revenue could grow four to five times from current levels by 2030.
The rising level of technical difficulty was also assessed as favorable for expanding Samsung Electro-Mechanics's market share. Next-generation ASIC chips are rapidly increasing in size and layer count, and multi-chiplet designs that connect several chips are spreading.
The practice of embedding MLCCs inside ABF to improve power stability is also increasing. As product structures grow more complex, Samsung Electro-Mechanics's technological competitiveness stands out, raising the potential for market share gains, the firm explained.
There are also expectations for a new product cycle. Morgan Stanley projected that the glass substrate market could open in earnest from 2028. It also assessed that price-increase cycles for silicon capacitors and ABF are proceeding faster and more strongly than previously expected.
Morgan Stanley judged that this growth potential is not yet fully reflected in Samsung Electro-Mechanics's current share price.
The company's expected price-to-earnings (P/E) ratio for 2028 is around 18 times, far below its past peak of 30 times, even as EPS growth strengthens, the firm said.
Applying an expected 2028 P/E of 33 times, the firm raised its price target to 2.62 million won. It kept its bull-case target at 3 million won, while lowering its bear-case target to 1.35 million won to reflect the potential for greater volatility.
