Expect Earnings Improvement in 2H23
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 TP of KRW75,000 on SEC. In the short term, earnings should decline amid the chip downcycle. In the mid/long term, however, capacity ramp-up and R&D effects should provide benefits in an expected upcycle in 2024. Thus, SEC should maintain differentiated earnings power in semiconductors going forward, unlike its competitors, which are undergoing capex and production cuts. For DP, we see record earnings this year and next thanks to SEC's dominance in the small-/mid-size OLED market. Also, ample net cash of KRW116tn (as of 3Q22) should secure new growth engines via M&A.
4Q22 forecast: OP at KRW5.8tn, below market consensus
We forecast 4Q22 revenue/OP at KRW71.5tn (-6.8% QoQ, -6.6% YoY)/KRW5.8tn (-46.5% QoQ, -58.2% YoY; 8.1% OPM), which are below the market consensus. Semiconductor OP should fall to KRW1.8tn (-66% QoQ, -79.9% YoY) on a decline in DRAM/NAND ASP (-28% QoQ/-29% QoQ) and a decrease in foundry utilization despite increased shipments (DRAM/NAND bit growth at +15% QoQ/+15% QoQ). MX should see earnings hit its lowest level since 2Q20 on reduced shipments (-6% QoQ) and lowered ASP (-15% QoQ) due to sluggish sales. In terms of divisional OP, we estimate Semiconductor/DP/MX/CE & Harman at KRW1.8tn/KRW1.8tn/KRW1.6tn/KRW0.6tn.
2023 forecast: OP at KRW25.2tn; expect earnings improvement in 2H23
We forecast 2023 revenue/OP at KRW279.0tn (-7.9% YoY)/KRW25.2tn (-43.8% YoY). DRAM/NAND ASP should fall until 1H23 as set makers hold conservative inventory strategies amid macro concerns. Earnings should bottom out in 2Q23 and improve in 2H23. In terms of divisional OP, we estimate Semiconductor/DP/MX/CE & Harman at KRW7.1tn/KRW5.9tn/KRW9.9tn/KRW2.3tn. SEC is trading at 1.12x 2023E P/B (lower end of historical band), suggesting concerns over the downcycle have been partially reflected.