The share price of Samsung Electronics dropped for four trading sessions in a row to reach this year’s low. Foreign investors have been selling off the stocks day after day in spite of its record-high quarterly sales, ever since the possibility of a slowdown in growth was raised in June.
According to the Korea Exchange, the price declined from 1,522,000 won (US$1,369) to 1,217,000 won (US$1,095) between this year’s first trading session and August 8 to post a 20.04% drop. Samsung Electronics accounts for 16.19% of the total market capitalization of the Korean stock market, which is about four times that of Hyundai Motor Company. This means that a drop in the stock price of Samsung could jolt the entire market.
JPMorgan’s report published in June tripped it up. In the report, the investment bank mentioned that Samsung Electronics’ growth momentum was weakening to drag down the stock price from 1,532,000 won (US$1,378) to slightly over 1,200,000 won (US$1,079) between June and the most recent session.
Foreign Investors’ Net Selling Reaching 320 Billion Won
On July 26, the electronics manufacturer announced that its operating profits for the second quarter was estimated to have grown 47.50% from a year earlier to 9.53 trillion won (US$8.57 billion) while the gross sales and current net income increased by 20.73% and 46.49% to 57.46 trillion won (US$51.65 billion) and 7.78 trillion won (US$6.99 billion) during the same period, respectively.
The business profits reached a new high on a quarterly basis, although it could not meet many market watchers’ expectations of 10 trillion won (US$8.99 billion). Nevertheless, foreign investors sold their Samsung shares. The net selling amount added up to 2.94 trillion won (US$2.64 billion) from June to July 26, when the earnings announcement was made, and 323.2 billion won (US$290.5 million) from the following day to August 7. Besides, the discussion of the FOMC’s exit strategy is adding oil to the fire.
If the selling spree before the earnings announcement was based on the doubt of the Q2 performance, that following the announcement is due to concerns over the business showings for the latter half. Under the circumstances, some analysts are saying that it will take more time for the share price of Samsung Electronics to make a rebound.
The problem is that investors are lowering their expectations for Samsung. The yearly operating profits estimated by market analysts have been decreased by a couple of trillion won in a month to 38.99 trillion won (US$35.05 billion) and by four trillion won or so (US$3.5 billion or so) when compared to three months ago. The target share price fell from 1.92 million (US$1,728) to 1.85 million won (US$1665) during the last three months.
Meanwhile, economists are predicting that the company will nonetheless be able to continue its growth in H2 this year, even though its profits will increase at a slower pace as the high-end smart phone market is losing steam. “The explosive quarter-on-quarter growth recorded in Q2 would be hard to find, but the growth of profit is likely to continue anyway,” said Shinyoung Securities researcher Lim Dol-yi.
At the same time, the future looks promising for its semiconductor business. The global semiconductor market is expected to grow 29% to US$386.991 billion between 2012 and 2017. In particular, the automobile semiconductor market, one of those where Samsung Electronics is distinguishing itself, is forecast to expand from US$25.941 billion to US$34.711 billion during the period.
KDB Daewoo Securities research analyst Song Jong-ho explained, “It can be said that Samsung Electronics is one of the most undervalued companies in the global IT industry given that the market capitalization of Qualcomm and TSMC, whose business profits are similar to those of the semiconductor division of Samsung, exceeds 100 trillion won.”