Samsung Electronics' Earnings Shock Continues, Stock Price Direction... Has It Become a National Concern?

Even Amid Current Stock Undervaluation Analysis, 'No Confidence in Bottom'... Must Keep Possibility of 40,000 Won Electronics Open

[Asia Economy Reporter Lee Seon-ae] Due to the shocking earnings shock of Samsung Electronics in the third quarter, individual investors' attention is focused on the direction of the stock price. The problem is the possibility of prolonged sluggish industry conditions. Ultimately, the fourth-quarter performance is expected to be poor, and downward revisions for next year's earnings are inevitable. Although there is an analysis that the current stock price is undervalued, the view that the possibility of '40,000 Electronics' should be kept open because it cannot be confidently said to be the 'bottom' is gaining weight.

According to the Korea Exchange on the 9th, Samsung Electronics closed at 56,200 won, down 100 won (0.18%) on the 7th. It was the first decline in five trading days. During the day, it fell to 55,200 won, then reversed to rise to 56,900 won, showing high volatility. On the same day before the market opened, Samsung Electronics announced its preliminary third-quarter earnings, reporting consolidated sales of 76 trillion won and operating profit of 10.8 trillion won. Compared to the same period last year, sales increased by 2.73%, but operating profit decreased by 31.73%. Compared to the previous quarter, they decreased by 1.55% and 23.4%, respectively. This was 2.95% and 9.0% below securities firms' earnings forecasts, respectively. According to financial information provider FnGuide, the third-quarter consensus for Samsung Electronics' sales and operating profit was 78.3062 trillion won and 11.8683 trillion won, respectively.

The main factors analyzed for the earnings deterioration were the worsening semiconductor industry conditions due to global economic recession-induced demand contraction and the decline in memory semiconductor prices. Despite the third-quarter earnings shock, the stock price did not fall sharply, presumably because it had already been reflected in the stock price. Song Myung-seop, a researcher at Hi Investment & Securities, said, "The current earnings are already reflected in the stock price, so they are not very meaningful," adding, "Last year's third quarter earnings were much better than market expectations, but the stock price started to fall from then."

However, the risk of '40,000 Electronics' is lurking. Samsung Electronics' stock price is expected to be influenced by next year's industry conditions and macroeconomic situation.

Researcher Song emphasized, "The semiconductor industry is expected to turn around only in the third quarter of next year, so it is still far from hitting the bottom." However, he added, "If leading economic indicators that predict future demand improve during the first quarter of next year, the stock price will start to rise significantly from then."

No Geun-chang, head of the research center at Hyundai Motor Securities, said, "Samsung Electronics said it would not artificially cut (memory semiconductor) production, but it did not rule out natural production cuts, and inventories will decrease over time," forecasting, "From the second quarter of next year, supply and demand will somehow balance out."

Amid uncertainties continuing into next year, the stock price is likely to fluctuate. Lee Seung-yoo, head of the research center at Eugene Investment & Securities, said, "While I believe the current stock price level is at the bottom, I do not know how much further it will fall," adding, "Investors who want to take courage can try investing." Director No also predicted, "I think the low 50,000 won range is the bottom, but due to earnings, the stock price will not rebound in a V-shape but will fluctuate as it rises."

Do Hyun-woo, a researcher at NH Investment & Securities, analyzed, "Regardless of earnings, the lowered valuation and the memory semiconductor supply reduction starting next year will be positive factors (for the stock price)," but also noted that "demand slowdown for smartphones and PCs due to the global economic recession could be a factor for future stock price decline."

Meanwhile, securities firms are lowering their earnings forecasts for Samsung Electronics for this year and next year. According to FnGuide, Samsung Electronics' operating profit consensus for this year has been revised down from 54.2312 trillion won a month ago to 50.0731 trillion won currently, and next year's operating profit consensus has been lowered from 49.8895 trillion won to 41.4173 trillion won.

Poor performance in the fourth quarter of this year is inevitable. At the current pace, Samsung Electronics' annual sales this year are estimated to barely reach 300 trillion won. Samsung Electronics' annual sales showed a sharp increase from 230.4 trillion won in 2019 and 236.81 trillion won in 2020 to 279.6 trillion won last year. Including the announced preliminary third-quarter results, cumulative sales for the first to third quarters are 230.99 trillion won, and operating profit is 39.02 trillion won. Operating profit has also significantly retreated from 51.6 trillion won last year, and there is a possibility that it will fall short of 50 trillion won this year.