4Q22 Forecast: OP of KRWKRW7.9tn (-43% 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. Despite downward revisions to our earnings forecast, we maintain BUY given the following:
(1) SEC is expected to demonstrate differentiated competitiveness and defend its earnings amid the chip downcycle.
(2) SEC should continue expanding advanced process capacity at its memory/ foundry lines and develop new growth drivers via M&As using net cash of KRW110tn. We anticipate 1a nm DRAM output proportion to expand (5% at end-2022→15% by end-2023), widening the margin gap with competitors.
4Q22 forecast: OP of KRWKRW7.9tn (-43% YoY)
We forecast 4Q22 revenue/OP at KRW76.6tn (+0.8% QoQ, flat YoY)/KRW7.9tn (-26.6% QoQ, -42.8% YoY; 10.4% OPM), with earnings down across the board excl. DP. Despite DRAM/NAND bit growth of 21% QoQ/20% QoQ, Semiconductor OP should decline 42.0% QoQ/67.9% YoY on continually falling ASP (DRAM -18% QoQ, NAND -19% QoQ). DP OP should hit record quarterly earnings on a rise in OLED panel supply share for iPhone 14 Pro/Pro Max (70% in 4Q21→85% in 4Q22E). OP by division, Semiconductor is estimated at KRW2.8tn, MX at KRW2.4tn, DP at KRW2.1tn and CE/Harman each at KRW0.6tn.
NAND/OLED competitiveness to be maintained
Despite the chip downcycle, differentiated margins and solid earnings power should be maintained thanks to NAND (23.6% of 2022E Semiconductor OP, 13.2% of total OP) and OLED (13.4% of total OP). NAND OP should remain positive (vs. -39% to -42% 4Q22E OPM for rivals) despite a 40% fall in NAND prices in 2H22. Flexible OLED OPM should stay above 20% on stronger market power and monopolistic Apple supplier status, lifting DP OP contribution to 13.4% in 2022E/18.1% in 2023E, highs not seen since 2012 (11.1%).