3Q22 Forecast: OP at KRW12.4tn (-22% YoY)
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY, target price of KRW75,000
We maintain BUY and 12m TP of KRW75,000 on SEC. We see 2H22 OP coming in at KRW23.2tn (-18% HoH, -22% YoY) and missing the market consensus by 10%, as all divisions excl. DP are suffering from deteriorating demand. In particular, DS earnings should slump in 2H22 as DRAM/NAND shipments and prices fall on softening downstream demand (e.g., PCs, smartphones, servers); buyers have adopted conservative inventory strategies based on expectations of an economic slowdown in 2023. Accordingly, we expect chip prices to remain weak until clients wind down inventory adjustments in 1H23.
3Q22 forecast: OP at KRW12.4tn (-22% YoY)
We expect DP to fare well as DS slumps. Overall, we forecast 3Q22 revenue at KRW79.6tn (+3% QoQ, +8% YoY) and OP at KRW12.4tn (-12% QoQ, -22% YoY; 15.5% OPM), which is below the consensus of KRW13.4tn. DS should see bit growth slow (DRAM -4% QoQ, NAND +3% QoQ) and ASP weaken (DRAM -13% QoQ, NAND -16% QoQ). We anticipate DP OP growth of 43% QoQ on surging orders for flexible OLED panels (iPhone 14). In terms of OP by division, we forecast DS at KRW7.4tn, MX at KRW2.7tn, DP at KRW1.5tn, CE at KRW0.5tn and Harman at KRW0.2tn.
Spotlight on competitive edge in NAND/OLED
Despite concerns of a memory chip down cycle and economic slowdown, SEC should record robust margins thanks to its superior cost structures for NAND (25.8% of DS OP; 15.9% of total OP) and OLED (10.5% of total OP). NAND’s improved cost structure should keep OPM at double-digit levels even if prices drop by over 30% in 2H22. OLED should maintain OPM above 20% thanks to its monopolistic position and patents. Of note, we see DP OP contribution reaching its highest level (2022E 10.5%) since 2012 (11.1%).