Industry Leaders Halved... Securities Firms' Valuation Forecasts Also Changed

[Asia Economy Reporter Lee Seon-ae] Although the domestic stock market has reversed to an upward trend after a long time, the prevailing view is that it is premature to consider this a sustained upward trend. Meanwhile, a shift has been detected in the securities industry's perspective on leading stocks in various sectors. Securities firms have been consecutively lowering the target prices of sector-leading stocks, indicating a cautious approach toward the domestic stock market.

According to the Korea Exchange on the 8th, NCSoft played a significant role as the leading stock in the gaming sector by reaching its highest price of 1,048,000 KRW on February 8. However, it has continued to trend at its yearly low, dropping to 558,000 KRW on the 29th of last month. The outlook remains pessimistic. Ebest Investment & Securities lowered NCSoft's target price from 700,000 KRW to 640,000 KRW, citing consensus misses. Shinhan Investment Corp. also reduced its target price from 930,000 KRW to 780,000 KRW, stating that "the target price is lowered by 16.1% reflecting earnings estimates."

The reputations of Amorepacific and LG Household & Health Care, the leading stocks in the cosmetics sector, are also suffering. Amorepacific’s stock price, which surged to 300,000 KRW on May 27 this year, fell to 170,500 KRW on the 1st. KTB Investment & Securities lowered its target price from 280,000 KRW to 200,000 KRW and adjusted its investment opinion from buy to neutral. Researcher Baesong from KTB Investment & Securities explained, "Sales were weaker than expected across most channels and regions except domestic online," adding, "In China, sales weakness combined with marketing cost burdens is expected to result in an operating loss." NH Investment & Securities lowered LG Household & Health Care’s target price from 2,100,000 KRW to 1,900,000 KRW, citing "a slowdown in third-quarter earnings due to local business impacts in China and rising raw material costs."

Leading semiconductor stocks Samsung Electronics and SK Hynix are also at their yearly lows. Samsung Electronics’ stock price dropped to the 71,000 KRW range, the lowest in 10 months since December 4 last year. SK Hynix’s stock price is similarly at its lowest level in about 10 months. Securities firms’ target prices for SK Hynix have reverted to levels from a year ago.

Cape Investment & Securities lowered SK Hynix’s target price from 170,000 KRW to 120,000 KRW. After suggesting 115,000 KRW in January 2020 and raising it to 170,000 KRW in February this year, the target price has now returned to the level from a year ago. The reason is the downward revision of earnings estimates. Ebest Investment & Securities lowered its target price from 153,000 KRW to 115,000 KRW, and KTB Investment & Securities from 155,000 KRW to 140,000 KRW. Goldman Sachs also removed SK Hynix from its Conviction List and lowered the target price from 177,000 KRW to 125,000 KRW.

LG Display, the leading stock in OLED, is also experiencing a sluggish trend, unable to escape its yearly low. IBK Investment & Securities lowered its target price from 33,000 KRW to 25,000 KRW. Kim Un-ho, a researcher at IBK Investment & Securities, explained, "This is due to the downward adjustment of the price-to-book ratio (PBR) applied following the decline in LCD panel prices," adding, "The expected decrease in operating profit for 2022 was also taken into account."

The leading stock in the pharmaceutical sector, Celltrion, is also on a downward path. Although the decline is milder compared to other sector leaders, the securities industry's downward revisions of target prices have dimmed prospects for a price rebound. Along with earnings declines, the emergence of oral COVID-19 treatments from multinational pharmaceutical company Merck is adding pressure. Kiwoom Securities downgraded its investment opinion from buy to ‘outperform’ due to earnings declines and lowered the target price from 350,000 KRW to 280,000 KRW. Shinhan Investment Corp. maintained its buy rating on Celltrion but lowered the target price from 320,000 KRW to 260,000 KRW.