[MarketING] When Considering Expanding Semiconductor Weight

KOSPI Trades Flat
Samsung Electronics Up 0.96%, SK Hynix Up 1.15%

On the 5th, the KOSPI opened at 2268.20, up 12.22 points (0.54%) from the previous trading day, as employees worked in the dealing room of Hana Bank in Jung-gu, Seoul. The won-dollar exchange rate started at 1271.0 won, down 0.7 won from the previous trading day. Photo by Hyunmin Kim kimhyun81@

The KOSPI is fluctuating around the flat line after starting higher. Semiconductor stocks are showing notable strength. This is attributed to expectations of an improvement in the semiconductor industry, following a significant rise in semiconductor stocks in the U.S. stock market the previous day. With Samsung Electronics scheduled to announce its preliminary first-quarter earnings next week, there are opinions suggesting that increasing exposure to the semiconductor sector after Samsung Electronics' earnings announcement could be considered.

KOSPI Fluctuates Around Flat Line

As of 10:25 a.m. on the 30th, the KOSPI was at 2,447.16, up 3.24 points (0.13%) from the previous day. The KOSDAQ rose 8.02 points (0.95%) to 851.96.

Although the index is fluctuating around the flat line, semiconductor stocks are strong. Samsung Electronics rose 0.96% to reach the 63,000 KRW level, and SK Hynix also increased by 1.15%. The strength in semiconductor stocks is due to the rise in the U.S. stock market the previous day, particularly the strong performance of semiconductor stocks. On the 29th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average rose 1.0%, the S&P 500 increased 1.42%, and the Nasdaq rose 1.79%. Notably, Micron rose more than 7% despite disappointing earnings, buoyed by optimistic industry outlooks. Intel (7.61%) and Lam Research (6.32%) also showed strength, pushing the Philadelphia Semiconductor Index up by 3.27%.

Micron disclosed on the 28th that its revenue for the second quarter of fiscal year 2023 (December 2022 to February 2023) was $3.69 billion (approximately 4.8 trillion KRW), down 53% year-on-year. This slightly missed market expectations of $3.71 billion. The net loss was $2.3 billion (about 3 trillion KRW), marking a turnaround to a loss compared to the previous year. Sangyoung Seo, a researcher at Mirae Asset Securities, stated, "Although Micron's earnings fell significantly short of expectations and the guidance for the next quarter also missed market forecasts, the stock price surged sharply, likely due to Micron's outlook that corporate inventories will improve and supply-demand conditions will remain favorable." He added, "Especially, sales to data centers, the largest demand sector, are expected to bottom out in the second quarter, and demand related to the artificial intelligence (AI) industry is anticipated to increase significantly, so inventory levels, which are on an improving trend, are expected to return to appropriate levels by the end of 2023."

Although Samsung Electronics and SK Hynix showed weakness the previous day due to Micron's poor earnings and profit-taking, they appear to be rising today as expectations for semiconductor industry improvement are reflected.

Researcher Seo said, "Many companies have mentioned positive outlooks for the semiconductor industry in the second half of the year, and Micron's results can be seen as consistent with this. As a result, semiconductor-related stocks led the rise, helping improve overall investor sentiment."

Focus on Samsung Electronics' Q1 Earnings Announcement Next Week

With semiconductor stocks showing strength amid expectations of industry improvement, market attention is focused on Samsung Electronics' preliminary first-quarter earnings announcement scheduled for the 7th of next month.

According to financial information provider FnGuide, the consensus forecast for Samsung Electronics' first-quarter earnings is revenue of 64.3842 trillion KRW, down 17.22% year-on-year, and operating profit of 1.1781 trillion KRW, down 91.66%. Securities firms expect Samsung Electronics' results to fall significantly short of consensus. Hana Securities forecasts operating profit of 500 billion KRW for Q1, Korea Investment & Securities expects 610 billion KRW, and Shin Young Securities projects 320 billion KRW. Rokho Kim, a researcher at Daishin Securities, explained, "This is below the rapidly declining consensus. The main cause of the poor performance is the semiconductor segment, where both DRAM and NAND shipments were much weaker than expected, and the price declines were significant." He added, "The deficit in memory semiconductors is estimated to reach 3.7 trillion KRW, and there is a possibility that additional inventory valuation losses will be reflected."

Although poor performance in the first half of the year is inevitable, hopes rest on demand improvement in the second half. Researcher Kim said, "In the second quarter of this year, semiconductor earnings improvement will be limited, and the Mobile Experience (MX) segment is expected to see profit decline due to a reduction in flagship effects, so the company's operating profit is forecast to decrease 29% from the previous quarter to 300 billion KRW. Nevertheless, the current time is when attention should be paid to industry and earnings improvement in the second half."

There is a forecast that increasing exposure to semiconductors is valid. Researcher Kim said, "Although the extent of the first-half downturn is larger than expected, the direction of weakness has already been reflected in the stock price. While there is no clear upward momentum for the time being, downside risk is limited, so it is a period to increase exposure during corrections."

Ji-young Han, a researcher at Kiwoom Securities, said, "During the Q1 earnings season, it is worth considering increasing exposure to the semiconductor sector after Samsung Electronics' earnings announcement, as there are upside factors such as lowered earnings expectations, market capitalization weight returning to 2018 levels, and continued expectations of production cuts."