SEC
The author is an analyst for NH Investment & Securities. He can be reached at hwdoh@nhqv.com -- Ed.
We believe that SEC’s earnings are primed to improve from 3Q23 on both industry-wide production cuts and inventory restocking demand. The pace of technology catch-up for HBM and DDR5 technologies is to be an important conditioner of future share price movements.
Expect earnings improvement from 3Q23
Adhering to a Buy rating, we raise our TP on Samsung Electronics (SEC) from W73,000 to W84,000 in light of a change in the base year (2023 → 2024) used for our valuation calculations amid entry into 2H23.
The IT giant’s preliminary results for 2Q23 show consolidated sales of W60.0tn (-6% q-q) and OP of W0.6tn (-6% q-q), with OP slightly beating both our estimate and consensus on likely higher-than-expected smartphone sales.
By division, we estimate that the company’s 2Q23 OP broke down as semiconductor -W4.8tn (RR q-q), display W1.4tn (+82% q-q), MX W3.5tn (-10% q-q), CE W0.2tn (+8% q-q), and Harman W0.3tn (+102% q-q), with continued sluggish memory market conditions weighing upon earnings.
Late decision to cut production is rather disappointing
Memory semiconductor industry conditions are expected to improve in earnest from 3Q23. DRAM and NAND ASPs are projected to rise by 7% and 5% q-q, respectively, upping for the first time in the latest eight quarters. Demand appears to be strengthening gradually in response to industry-wide production cuts and inventory restocking demand, mainly related to high-end PCs and Chinese smartphones. An ongoing memory price upcycle looks set to sustain until at least 2H24.
It is regrettable that SEC’s strategic decision on production cuts was delayed. We see a major conditioning factor for its future share price movements as being the speed of catch-up for high bandwidth memory (HBM) and DDR5-related technologies. Being at the forefront of technology trends, such products are seeing a rapid climb in demand as of late.