[Click eStock] "Samsung Electronics, 3Q Earnings Decline Inevitable Due to Semiconductor Slump... Target Price ↓"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jaehee] IBK Investment & Securities maintained its 'Buy' rating on Samsung Electronics on the 27th but lowered the target price from the previous 88,000 KRW to 70,000 KRW.

Samsung Electronics' third-quarter sales this year are expected to be 80.97 trillion KRW, a 4.9% increase from the second quarter, while operating profit is forecasted at 11.624 trillion KRW, a 17.6% decrease from the previous quarter. Both sales and operating profit are significantly lower than previous projections.

By business division, the Semiconductor (DS) division is expected to decline compared to the second quarter, while the Display division, Mobile (MX) Network division, and Visual Display (VD) Home Appliance division are expected to increase compared to the second quarter. Operating profits for the DS division and VD Home Appliance division are expected to decrease compared to the second quarter. The remaining divisions are expected to see an increase in operating profit compared to the second quarter.

The main reason for the third-quarter performance slump is the semiconductor sector. The decline in average selling price (ASP) exceeds expectations, and memory semiconductor growth is also expected to be negative. The problem lies in weak demand, as customers are not responding despite price drops. Additionally, demand weakness is spreading from servers to mobile. The display sector is expected to improve significantly compared to the second quarter due to new products from overseas clients. Market share is also expected to improve due to competitors' poor performance. Mobile volume will slightly increase, but profitability is expected to worsen, largely due to the impact of the KRW-USD exchange rate.

Kim Unho, a researcher at IBK Investment & Securities, analyzed, "The recent stock price decline reflects concerns about the DRAM market, and while a rebound in DRAM prices is unlikely, the rate of decline is expected to slow after the third quarter. Operating profit this year is expected to reach 50 trillion KRW, indicating high potential for stock price appreciation, but reflecting the downward revision of earnings forecasts, the target price is lowered from 88,000 KRW to 70,000 KRW."