4Q22 Forecast: OP at KRW9.1tn (-34% 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
Despite SEC’s 3Q22P earnings shortcomings, we maintain BUY and 12m TP of KRW75,000. We expect standout profit margins on business diversification (i.e., DP, foundry) and a solid cost structure (i.e., DRAM, NAND) amid the chip downcycle. While supply cuts should create better business conditions this downcycle than in the last, we see clients’ inventory reductions crucial to industry conditions in 2023 given that (1) economic concerns are leading to conservative inventory management and (2) the industry is slowing at a faster pace because of diving demand for IT durables.
3Q22P OP of KRW10.8tn (-32% YoY) far short of market consensus
SEC posted 3Q22P revenue of KRW76tn (-2% QoQ, +3% YoY) and OP of KRW10.8tn (-23% QoQ -32% YoY; 14.2% OPM), far short of the market consensus. Main takeaways are a slump for DS and strong performance at DP/MX. DS OP plummeted 50.1% YoY (-49.7% QoQ) on negative bit growth (DRAM -16% QoQ, NAND -10% QoQ) and ASP declines (DRAM/NAND at -17% QoQ). Yet DP OP rose 22% YoY (+72% QoQ) on +3% QoQ shipments from increasing flexible-OLED orders from Apple (iPhone 14) while MX OP rose on flagship models’ increased output proportion (23%). OP by division, we see DS at KRW5.0tn, MX at KRW3.2tn, DP at KRW1.8tn and CE & Harman each at KRW0.7tn.
4Q22 forecast: OP at KRW9.1tn (-34% YoY)
We forecast 4Q22 OP at KRW9.1tn (-16% QoQ -34% YoY; 11.7% OPM). Earnings should retreat across the board excl. DP, which should see a record quarterly high. DS OP (-26% QoQ, -58% YoY) should fall, with DRAM/NAND bit growth (each +10% QoQ) offset by continual ASP declines (DRAM/NAND at -15% QoQ). OP by division, we see DS at KRW3.7tn, MX at KRW2.5tn, DP at KRW2.4tn and CE/Harman each at KRW0.5tn.