Earnings Rebound Expected in 3Q20
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
We estimate Samsung Electronics’ 2Q20 OP at W5.65tn (-12% q-q). Affected by Covid-19 and delayed reflection of one-off gains at the display division, the firm’s 2Q20 earnings are likely to arrive sluggish. We expect SEC’s OP to pick up in 3Q20 on peak season effects and smartphone demand growth.
Ramping up NAND investment
We maintain a Buy rating on Samsung Electronics (SEC) with a TP of W66,000. We attribute the recent weakness in SEC’s share price to expectations for sluggish 2Q20 earnings, a sharp drop in the dollar/won rate, and concerns towards memory price decline from 3Q20. From an investment perspective, we advise focusing on the potential for a 3Q20 earnings rebound rather than the firm’s likely poor 2Q20 earnings.
We estimate SEC’s 2Q20 sales at W50.57tn (-9% q-q), OP at W5.65tn (-12% q-q), and NP at W4.23tn (-14% q-q), with OP arriving short of the consensus of W6.3tn. Of note, one-off profits originally set to be reflected in 2Q20 at the display division are now to be reflected in 3Q20.
By division, 2Q20 operating income is forecast at W5.18tn (+30% q-q) for semicon, -W0.72tn (deficit expansion q-q) for display, W1.07tn (-60% q-q) for IM, and W0.39tn for CE (-13% q-q). In 2Q20, the impact of Covid-19 is to be felt the strongest, with Covid-19-related economic slowdown effects likely focusing on the IM and display divisions rather than the semicon business.
3Q20 OP to improve to W8.74tn (+55% q-q)
In 3Q20, SEC’s OP is expected to improve to W8.74tn (+55% q-q), with OP at the semicon division likely increasing to W5.88tn (+13% q-q) on robust shipments driven by peak seasonality. Both 3Q20 DRAM and NAND ASPs are predicted to come in flat q-q. Also positive, smartphone demand appears to be recovering as the world begins to escape the impact of Covid-19. We forecast 3Q20 IM division OP at W1.56tn (+46% q-q).
Recently, concerns have emerged towards a potential slowdown in memory supply-demand conditions in 2H20. In particular, data center investment is likely to decrease in 2H20 versus the 1H20 level. However, this decline could be offset by increased demand for smartphones, PCs, and game consoles. We note that Sony’s PS5 (to be officially announced on Jun 12) is to be equipped with 16GB of DRAM and 825GB of NAND, a development that should boost memory demand in 2H20. Meanwhile, 2020 sales of Apple’s iPhone 12 series (to start production from July) are forecast to reach 68mn units (+12% y-y vs 2019 iPhone 11 sales). Given recent PC component supply-demand conditions, PC demand should also continue improving through yearend.