[Click eStock] "Samsung Electronics, More Time Needed for Full Stock Price Rebound... Target Price Down"

On the 17th, Hanwha Investment & Securities downgraded its earnings estimates for Samsung Electronics for next year and lowered the target stock price from 90,000 KRW to 73,000 KRW. The investment rating was maintained at 'Buy.'

Researcher Kim Kwang-jin of Hanwha Investment & Securities explained, "We lowered the target price by about 19% reflecting the downward revision of next year's estimates," adding, "The current stock price is already formed at the historical band's lower end with a price-to-book ratio (PBR) of 0.9 times based on next year's book value per share (BPS), and with ongoing share buybacks, the downside is rigid, so we maintain the buy rating." He continued, "However, Samsung Electronics is entering a phase where the traditional demand sectors, where it has strengths, are worsening, and there is no new confirmation of competitiveness in the artificial intelligence (AI) market, so it will take some time before a full-fledged stock price rebound."

Hanwha Investment & Securities revised Samsung Electronics' expected operating profit for the fourth quarter of this year down from 10.6 trillion KRW to 8.4 trillion KRW. Researcher Kim said, "This is due to the downward revision of the Device Solutions (DS) division's operating profit estimate from 5.8 trillion KRW to 3.6 trillion KRW," adding, "The shipment growth rates for DRAM and NAND are expected to fall short of the initial guidance and previous estimates (DRAM -5%, NAND 3%), at -8% and 0%, respectively. This is because demand weakness in traditional sectors such as mobile and PC has worsened compared to previous expectations." The blended average selling price (ASP) is also projected to be below market expectations at about 1% for DRAM and -9% for NAND, considering Samsung Electronics' product mix and recent price trends. Additional negative factors for profits include the DS division's performance bonus provisions continuing from the last quarter, increased depreciation expenses due to the transition and ramp-up of legacy nodes to 1b (5th generation), and cost increases. The lack of significant deficit reduction in non-memory sectors is also a negative factor.

Hanwha Investment & Securities also lowered its operating profit forecast for next year from 46 trillion KRW to 35.1 trillion KRW. Researcher Kim explained, "This is due to the downward revision of profits in the DS and Mobile Experience (MX) divisions, with DS lowered from 25.6 trillion KRW to 16.7 trillion KRW and MX from 11.8 trillion KRW to 9.7 trillion KRW," adding, "The DS revision reflects a more conservative price outlook considering the worsening traditional demand sectors. If there is no change in demand next year, we expect price pressure to increase from the third quarter for DRAM and from the first quarter for NAND. MX reflects the possibility of profitability pressure due to weak front-end demand and rising manufacturing costs."