Semiconductor/equipment
The author is an analyst for Shinhan Securities. He can be reached at ym.ko@shinhan.com -- Ed.
2Q23 preliminary results: Better-than-feared earnings from MX Samsung Electronics disclosed preliminary 2Q23 results at company-wide operating profit of KRW0.6tr (continued loss QoQ) on sales of KRW60tr (-6% QoQ), exceeding the consensus estimate of KRW0.2tr. Operating earnings from semiconductors were seen in line with expectations at a loss of KRW4.2tr. Preliminary earnings at the mobile experience (MX) division were reported at a profit of KRW3.1tr vs. initial expectations of KRW2.9tr.
We estimate the QoQ decline in ASP levels at 10% for DRAM and 9% for NAND. While a broad-based recovery in demand is yet to be seen, quarterly data clearly showed stronger demand for new high-end DRAM chips. Samsung Electronics is unlikely to see an immediate boost with DDR5 and high-bandwidth memory (HBM) chips accounting for a relatively small portion of sales. However, its results concur with the recent data from Micron Technology in confirming a slowdown in ASP declines for DDR4 and NAND.
Profit momentum for 2024 to hinge on performance in 2H23
For 2023, we forecast sales at KRW270.8tr (-10% YoY) and operating profit at KRW7.3tr (-83% YoY). A clear turnaround is expected in 2H23, on: 1) visible effect of production cutbacks; and 2) gradual improvement in economic conditions. The effect of output cuts should become visible from end-3Q23 or early-4Q23, and we expect inventory levels to drop from the peak of 15 weeks or more at end-2Q23 to nine weeks by end-4Q23.
Due to the relatively smaller share of in-demand DDR5 and HBM chips in DRAM sales vs. its rival, Samsung Electronics should see weaker improvement in DRAM earnings this year. However, profit growth will likely accelerate in 2024 if DDR5 production yields improve and quality tests for HBM3 chips at a client are completed as planned within 2H23.
TP raised in light of imminent turnaround in market conditions
We raise our target price for Samsung Electronics to KRW86,000, based on 2024 BPS of KRW53,758 and a target PBR of 1.6x. In the absence of further slowdown in demand, market conditions are likely to improve at a faster pace towards the end of the year amid limited supply. Even before the additional boost from DDR5 and HBM3 chips, improving demand for DDR4 and NAND should be enough to drive a market turnaround in 3Q23-4Q23. We believe further upside in earnings and share price will hinge on confirmation of competitiveness in DDR5 and HBM3 chips going forward.