[Click eStock] "Samsung Electronics Enters a Price Range Suitable for Long-Term Investment and Bottom Buying"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Hi Investment & Securities maintained a 'Buy' rating on Samsung Electronics on the 27th, setting a target price of 82,000 KRW.

Samsung Electronics' operating profit for the second quarter of this year is expected to slightly improve to 14.3 trillion KRW compared to the previous quarter. The shipment growth rates for the DRAM and NAND sectors are expected to be 9% and 2%, respectively, with average selling price (ASP) change rates of -2% and 3%, respectively. This slightly underperforms Samsung Electronics' previous market forecasts, indicating that the semiconductor market began to feel the effects of economic slowdown starting in the second quarter. The semiconductor division's operating profit for the second quarter is expected to increase by 17% quarter-on-quarter to 9.9 trillion KRW.

The combined effects of demand deterioration due to economic slowdown and lockdowns in major Chinese cities seem to have already been reflected in Samsung Electronics' stock price, which is underperforming compared to earlier expectations for the second quarter market conditions. Assuming that the lockdowns in Chinese cities are fully lifted, production and shipments are expected to increase from the third quarter, and IT equipment demand in China, which was suppressed in the second quarter, is likely to recover somewhat.

Although production and shipments were sluggish, semiconductor purchases by customers proceeded normally, suggesting a significant increase in customers' semiconductor inventories. Accordingly, semiconductor inventory adjustments will be necessary for the time being, and it is judged that customers' semiconductor orders in the second quarter are likely to slow down compared to initial expectations. The DRAM industry's shipment growth rate, initially expected to be 18.7% this year, is projected to fall to 14.7% due to the slowdown in customer orders.

Samsung Electronics reflects this situation by estimating that the DRAM ASP decline rates for the third and fourth quarters will be 8% and 11%, respectively, and that semiconductor companies' own inventories, currently estimated at about 4 weeks, will rise to about 6 weeks by the end of this year. It is judged that the current semiconductor stock price has already factored in the second quarter market outlook, which is worse than expected.

Song Myung-seop, a researcher at Hi Investment & Securities, analyzed, "Samsung Electronics' recent lowest stock price of 57,400 KRW corresponds to 1.14 times the conservative 2022 expected book value per share (BPS) of 50,240 KRW, which is very close to the average multiple of 1.1 times at the lowest points during sharp declines," adding, "From a long-term investor's perspective, the current stock price appears to have entered a price range suitable for bottom-fishing."