[Stock of the Week] "Nothing Left to Lose in Samsung Electronics Valuation... 'Buy Korea' Hopes Rise"

No Further Downside for HBM Either
Strong Commitment from the Lee Jaemyung Administration to Boost the Stock Market
Returning Foreign Investors Increase Net Purchases of Samsung Electronics

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Since the beginning of this year, Samsung Electronics' stock price has struggled to break out of the low 50,000 won range, but it is once again knocking on the door of the '60,000-won Samsung' milestone. As the company's valuation has dropped to a level where there is little left to lose, investors are focusing their attention. While some analysts predict the stock may remain range-bound due to factors such as DRAM inventory accumulation and the challenge of supplying high-bandwidth memory (HBM) to Nvidia, others expect Samsung Electronics to benefit from the structural reform of the domestic stock market and the resulting 'Buy Korea' trend.

On June 9, Samsung Electronics closed at 59,800 won, up 1.18% from the previous day. During the session, the price rose to 60,400 won, surpassing the 60,000-won mark for the first time since March 27. At that time, the stock climbed to 62,000 won, but then plunged nearly 15% to 53,200 won by April 7, about a week later. Now, attention is focused on whether the stock can settle in the 60,000-won range this time.

No More Downside... HBM Also at Its Bottom

From a valuation perspective, some analysts believe there is no further downside. Although memory prices are expected to fall as companies have proactively built up memory inventories from the fourth quarter of last year through the first quarter of this year, this could be offset by seasonal demand starting in the second quarter. Based on the current year-end earnings consensus, the price-to-book ratio (PBR) stands at 0.97 times, which is still considered reasonable.

The same goes for performance. According to financial information analysis firm FnGuide, the securities industry expects Samsung Electronics' second-quarter earnings consensus to be 77.0169 trillion won in revenue and 6.6892 trillion won in operating profit. Compared to the same period last year, revenue is projected to increase by 4.0%, while operating profit is expected to decrease by 34.2%. The company is forecast to rebound, with third-quarter operating profit rising to 9.4562 trillion won. In the fourth quarter, operating profit is expected to reach 9.2297 trillion won, up 42.1% year-on-year. For the full year, the consensus projects revenue of 319.3451 trillion won and operating profit of 32.0836 trillion won.

The semiconductor division is expected to perform well in the second quarter. DRAM business results are forecast to improve, and the foundry's losses are expected to narrow. Several factors are contributing to this: advance buying by customers in response to U.S. tariff policies, inventory buildup due to reduced legacy memory production, and improved foundry utilization rates.

The mobile division is in a new product launch lull in the second quarter, but increased shipments of mid- to low-priced AI smartphones and cost reduction effects are expected to result in performance that exceeds market expectations.

Of course, Samsung Electronics is still unable to supply HBM to Nvidia. However, this also means that the situation is not getting any worse. Park Yuak, a researcher at Kiwoom Securities, explained, "Samsung Electronics has begun to improve the yield of its previously troubled 1cnm DRAM, and mass production testing of HBM3E 12hi products for supply to Nvidia and AMD is proceeding without major issues. While it is too early to make definitive conclusions, the situation is clearly different from previous periods of disappointing results."

Expectations for Structural Reform in the Korean Market

If the amendment to the Commercial Act passes, Samsung Electronics is also expected to benefit from the resulting reform of the Korean stock market. When foreign investors re-enter the domestic market, they will inevitably have to buy top market cap companies like Samsung Electronics.

According to the Korea Exchange, Samsung Electronics' share of the total domestic market capitalization fell from 13.79% on January 2 to 12.94% on June 9. The foreign ownership ratio also decreased from 50.46% to 49.72% during the same period. This is the lowest level in the past 10 years, comparable to 2022 and 2016. This is fueling expectations for a 'Buy Korea' trend among foreign investors.

Since the presidential election, foreign investors have already shown an active stance toward investing in Korea. With the political vacuum filled and expectations for the new government's commitment to revitalizing the stock market, sentiment is positive.

According to the Korea Exchange, from June 4 to June 9, foreign investors made a net purchase of 2.9526 trillion won in the KOSPI market. On June 4, for the first time this year, they bought more than 1 trillion won in a single day. Since the presidential election, the stocks most heavily purchased by foreign investors have been semiconductor stocks, such as SK Hynix and Samsung Electronics. From June 4 to June 9, during three trading days, they made net purchases of 729.4 billion won and 726.3 billion won, respectively.

Unlike earlier this year, when investment focused on 'tariff-free zones' such as defense, power, and essential consumer goods amid U.S. tariff developments, investor sentiment has now shifted back to large-cap semiconductor stocks that had previously been somewhat neglected. Korea Electric Power, which had held the number two spot in net foreign purchases until last month, fell to ninth place after June 4.

With President Lee Jaemyung's clear commitment to structural reform and support for the stock market, foreign inflows are expected to continue for the time being. The administration's strong leadership, including securing a majority in the legislature, also increases the likelihood of implementing governance-related policies such as amendments to the Commercial Act. There are expectations that measures such as restricting multiple listings of holding companies, mandating treasury stock cancellation, and requiring improvements from companies with opaque governance could help resolve the 'Korea discount.'

Lee Woongchan, a researcher at IM Securities, analyzed, "Given the needs of the times and the president and ruling party's inclination toward strong fiscal policy, fiscal stimulus is likely to be prioritized over interest rate cuts due to concerns about real estate prices. President Lee is expected to prioritize economic and stock market support from a pragmatic perspective, rather than political ideology."