[Click eStock] "Samsung Electronics, Focus on Supply Reduction Over Demand Decline... Expect Short-Term Rebound"

[Image source=Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] Shinhan Financial Investment maintained its 'Buy' rating and target price of 70,000 KRW for Samsung Electronics on the 4th.

Samsung Electronics' third-quarter earnings are estimated at 77.3 trillion KRW in revenue and 11.3 trillion KRW in operating profit. While revenue increased by 0.1% compared to the previous quarter, operating profit fell by 19.9%. Due to the downturn in the macro environment, sales of smartphones and TVs have slowed, and memory semiconductor prices have declined, leading operating profit to fall short of market expectations.

As the decline in IT demand is rapid, supply reduction is also expected to be unprecedented. The rate of semiconductor order cuts is faster than the decrease in IT demand, so memory companies are expected to boldly reduce supply by leveraging their monopolistic power. Micron announced in its earnings conference call that it will cut capital expenditures by 50% next year and reduce operating rates by about 5% at the end of the year and early next year. Kioxia also announced plans to reduce NAND production by about 30% starting in October.

Choi Do-yeon, a Samsung Electronics analyst, said, "As confirmed in past downturn cycles, after confirming the earnings shock, the stock price rebounded in the first quarter of 2019, and the key logic driving that rebound was supply reduction," adding, "This fourth quarter can be applied to that logic, and supply reduction, a core variable unique to memory semiconductors, provides the rationale for memory stocks to outperform the KOSPI."