Samsung Electronics Co. and SK Hynix Inc., which announced a large-scale promotion and bonus party with record high earnings, saw their stock prices drop to the level a year ago.
According to Korea Exchange (KRX), the price of Samsung Electronics shares fell to 40,450 won (US$36.07) in the midday trading on the benchmark KOSPI market on Dec. 6, returning to the level of the stock split price in April last year. The price of Samsung Electronics stock, which showed a downward sloping for over a year amid concerns about the semiconductor boom coming to an end, dropped by nearly 30 percent compared to the highest point of 57,000 won (US$50.82) reached in October last year. SK Hynix also saw its stock price remain at the level in August last year, except for the collapse in October in 2017.
To be sure, this is due to an uncertain global business environment and concerns over a performance deterioration caused by lower memory chip prices.
According to stock market tracker FnGuide Inc., Samsung Electronics’ operating profit is expected to peak this year and gradually go down starting from next year. The figure recorded some 29 trillion won (US$25.92 billion) in 2016. It is forecast to be more than double to 64 trillion won (US$57.19 billion) this year and then fall to 59 trillion won (US$52.73 billion) next year. The company’s quarterly operating profit will also peak at 17 trillion won (US$15.19 billion) in the third quarter of this year and then drop to 16 trillion won (US$14.3 billion) in the fourth quarter.
The problem is that securities companies are lowering their forecasts for earnings and revenue of the company. Samsung Electronics’ operating profit consensus in the fourth quarter stood at 16.24 trillion won (US$14.51 billion) a month ago but it slipped 1.3 percent to 16.03 trillion won (US$14.33 billion) now. The company’s operating profit consensus for next year also went down by 2.6 percent from 60.79 trillion won (US$54.32 billion) in November to 59.21 trillion won (US$52.92 billion) in December. Accordingly, securities firms’ target stock price for the company also fell by 1.08 percent from 59,864 won (US$53.51) a month earlier to 59,217 won (US$52.93) now.
SK Hynix showed a steeper downward curve in earnings projection. The company’s annual operating profit consensus for next year had a whopping 4.9 percent drop in a month from 20.86 trillion won (US$18.66 billion) in November to 19.83 trillion won (US$17.74 billion) in December. Its target stock price also decreased by 1.27 percent to 94,824 won (US$84.82) compared to a moth ago.
It seems difficult for Samsung Electronics and SK Hynix to show a big rebound in stock prices for a while. This is because the market prices of memory chips, such as DRAMs and NAND, are expected to fall starting from next year. Uh Kyu-jin, an analyst from eBEST Investment Securities Co., said, “Entering the year-end off-season, demand of major products, including server chips, falls short of the estimate. The annual drop in DRAM and NAND chip prices is estimated at 20.9 percent and 35.5 percent, respectively, next year.”
The undervalued merit is the only hope as the two companies have seen excessive fall in share price compared to performance. Samsung Electronics’ price earnings ratio (PER) recorded at 9.4 in December last year but it slipped to 6.61 this year. The figure is forecast to stand at 6.97 in 2019 and 6.5 in 2020. SK Hynix’s PER reached 11.02 in December 2016 but kept falling to 5.23 in 2017 and 3.09 this year. The company’s PER estimate is 3.46 for next year and 3.22 for 2020.
The average PER of KOSPI-listed companies also decreased to 10.24. For global stock markets, the PER of the United States is 16.1 and Australia 14.6.