The authors are analysts of Shinhan Investment Corp. They can be reached at firstname.lastname@example.org and email@example.com, respectively. -- Ed.
1Q20 OP reported at KRW6.4tr (-10.6% QoQ)
Samsung Electronics released preliminary results for 1Q20 at operating profit of KRW6.4tr (-10.6% QoQ) on sales of KRW55tr (-8.2% QoQ), topping the market consensus of KRW6.1tr. Earnings came in slightly higher than expected across the board as impact of the COVID-19 pandemic remained limited and the USD/KRW rate increased towards the end of the quarter.
By division, operating profit is estimated at KRW4tr (+15.3% QoQ) for semiconductors, KRW2.3tr (-8.8% QoQ) for IT & mobile communications (IM), and KRW0.5tr (-35.4% QoQ) for consumer electronics (CE). The display division likely incurred an operating loss of KRW0.4tr (negative swing QoQ).
2Q20 OP forecast at KRW6.8tr (+6.0% QoQ)
For 2Q20, we forecast sales at KRW55.9tr (+2% QoQ) and operating profit at KRW6.8tr (+6% QoQ). Semiconductor earnings should visibly improve vs. 1Q20 on the increase in chip prices. However, we expect a temporary slowdown in earnings from IM and CE businesses on the decline in shipments caused by the pandemic and increase in marketing spend. The display division is expected to book compensation paid by a client for missing its minimum order quantity.
By division, operating profit should reach KRW5.5tr (+38.7% QoQ) from semiconductors, KRW1.1tr (-52.0% QoQ) from IM, KRW0.1tr (positive swing QoQ) from display, and KRW0.1tr (-77.6% QoQ) from CE.
Semiconductor market uptrend intact, albeit at a temporarily slower pace
Our outlook on the earnings peak of the current DRAM cycle remains unchanged, although it may take longer than previously expected to reach that point due to the COVID-19 pandemic. DRAM earnings are now expected to peak in 2H21, marking a slight delay from our pre-pandemic forecast of 1H21. We slightly lower our full-year earnings projections for 2020 but maintain our forecasts for 2021.
In 2Q20, earnings momentum could weaken due to the impact of the COVID-19 pandemic. Nevertheless, we recommend accumulating shares in Samsung Electronics on expectations for sharp earnings growth in 3Q20 and 2021.