The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. -- Ed.
We lower our TP for Samsung Electronics (SEC) to W66,000. The impact of Covid-19 is expected to concentrate at the IM and display divisions. Conditions at the memory semicon division remain relatively stable, spurred by increased demand for telecommuting and online education.
1Q20 results exceed consensus
While we maintain a Buy rating on Samsung Electronics (SEC), we lower our TP from W74,000 to W66,000 as we revise down our 2020 OP estimate.
SEC’s preliminary 1Q20 OP amounted to W6.4tn (-11% q-q), exceeding consensus but coming in below our estimate. We believe that earnings were solid at semicon division but sluggish at the IM and display divisions. In detail, operating income is estimated at W3.6tn (+5% q-q) for the semicon division, -W0.2tn for the display division (TTL q-q), W2.5tn for the IM division (-3% q-q), and W0.4tn for the CE division (-46% q-q).
The impact of Covid-19 is expected to concentrate at the IM and display divisions. Galaxy S20 shipments, which were originally predicted to exceed 32mn units in 2020, are now expected to reach 20mn units. Demand for foldable smartphones, such as the Galaxy Z-Flip, which received a strong response upon launching, has also slowed. Meanwhile, OLED panel shipments were likely sluggish due to offline store closures at major clients such as Apple.
Memory semicon prices continuing to rise
In the semicon sector, the impact of Covid-19 looks limited. From early-2020, memory semicon supply has remained insufficient, held down by a refrain from new capacity investment by memory players since 2019. We note that increased demand for data centers (eg, for telecommuting, online education, and OTT streaming services) stemming from the Covid-19 crisis is serving to drive up semicon demand. And, the decline in mobile DRAM demand should be offset by greater server DRAM demand. In February, Korean OTT service traffic rose 44% y-y. According to Equinox, global data traffic has climbed 10~40% since the outbreak of Covid-19.
In 2Q20, with the effects of Covid-19 intensifying, memory semicon price growth should further accelerate. We size 2Q20 DRAM ASP growth at +10% q-q and NAND ASP growth at +9% q-q. Relative to other players, SEC’s share price is expected to remain solid, thanks to healthy memory semicon supply-demand conditions.