Hanhwa Investment, Daishin, Samsung Downgraded to '70,000 Electronics'
DRAM and NAND Price Decline
Weak IT Demand and HBM Mass Production Delay
Q4 Last Year Earnings Forecasts All Lowered
Earnings Improvement Expected in Second Half of This Year
Securities firms have consecutively lowered Samsung Electronics' target stock price starting from the first trading day of the new year 2025. The atmosphere is to adjust not only the fourth-quarter earnings but also the operating profit forecast for 2025. The timing of earnings improvement has also been delayed to the second half of this year.
According to FnGuide, on the 2nd, Korea Investment & Securities lowered Samsung Electronics' target stock price by 7% from 83,000 KRW to 77,000 KRW. Daishin Securities and Samsung Securities also lowered their target prices to 78,000 KRW and 74,000 KRW, respectively.
Cha Min-sook, a researcher at Korea Investment & Securities, analyzed, "The fourth-quarter sales are expected to be 74.5 trillion KRW, and operating profit 7.3 trillion KRW, which will fall short of the consensus sales (77.9 trillion KRW) and operating profit (8.9 trillion KRW) by 4% and 18%, respectively. Inventory adjustments have started again, mainly among mobile and PC customers, and conventional memory demand is estimated to be lower than expected."
The biggest cause of poor performance is the slump in IT demand such as smartphones and PCs. Accordingly, DRAM and NAND are expected to face increased price decline pressure this year. Market research firm TrendForce forecasted that NAND memory transaction prices will fall by 3-8% in the fourth quarter of 2024 and further decline by 10-15% in the first quarter of 2025. This means that the profitability deterioration of Samsung Electronics' mainstay legacy (general-purpose) memory will continue. Along with this, the continued losses in the foundry sector are also expected to negatively impact earnings.
Researcher Cha pointed out, "The outlook is that IT hardware set demand in 2025 will only see weak growth in the low to mid single-digit percentages compared to the previous year. From the perspective of memory semiconductors, growth based on volume will be limited as in 2024, so it is essential to limit supply accordingly and adopt a strategy to prevent average selling price (ASP) decline."
Accordingly, the earnings expectations for the fourth quarter of 2024 continue to decline. FnGuide estimates Samsung Electronics' fourth-quarter sales at 77.8721 trillion KRW and operating profit at 8.9732 trillion KRW. Six months ago, the consensus for sales and operating profit was 82.4173 trillion KRW and 12.7098 trillion KRW, respectively. The operating profit forecast has dropped by nearly 30%.
Samsung Securities also revised down the operating profit forecast for 2025. Lee Jong-wook, a researcher at Samsung Securities, predicted, "Inventory adjustments will continue until the first half of 2025," estimating the 2025 operating profit to be 35.8 trillion KRW, down 24%.
However, Lee said, "It is true that a strong rebound trigger is not yet visible, but the company's strategy is definitely shifting to a stance of responding to the crisis. Once customer inventory begins to decrease, the impact on the stock price will quickly be resolved."
In the case of Daishin Securities, the timing for Samsung Electronics' earnings recovery was delayed to the second half of this year. Shin Seok-hwan, a researcher at Daishin Securities, analyzed, "Despite steady demand for HBM and server memory, Samsung Electronics' HBM mass production schedule was delayed more than expected. Earnings improvement is expected in the second half of 2025 due to IT demand improvement, supply centered on DDR5 and LPDDR5, and gradual expansion of supply of 8-stack and 12-stack HBM3E for major customers."
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