Extreme Supply Shortages Expected in DRAM Market Next Year
The authors are analysts of Shinhan Investment Corp. They can be reached at doyeon@shinhan.com and sungjun.na@shinhan.com, respectively. -- Ed.
2Q20 OP forecast at KRW6.17tr(-4.3% QoQ)
Samsung Electronics is forecast to post sales of KRW54.23tr (-2.0%QoQ) and operating profit of KRW6.17tr (-4.3%QoQ) for 2Q20. Despite the pandemic's negative impact on smartphone sales volume(-33.5% YoY) as well as market conditions for displays and consumer electronics (CE), we believe overall earnings were quite solid in 2Q20.
By division, we now expect operating profit to reach KRW5.49tr (+37.7% QoQ) from semiconductors, KRW1.10tr (-58.2% QoQ) from IT & mobile communications (IM), and KRW0.21tr (-54.2% QoQ) from CE. Operating loss from displays is expected to widen QoQ to KRW0.63tr.
3Q20 OP to jump 53% QoQ to KRW9.44tr
Earnings should sharply recover in 3Q20, with sales forecast at KRW64.12tr (+18.2% QoQ) and operating profit at KRW9.44tr (+53.0% QoQ). Display and IM shipments have recovered at a rapid pace from June after temporarily slowing down on impact of the COVID-19 pandemic. We also expect to see slight QoQ improvement in earnings from semiconductors in 3Q20.
By division, operating profit is expected to improve to KRW5.72tr (+4.2% QoQ) for semiconductors, KRW2.27tr (+105.9% QoQ) for IM, KRW1.14tr (positive swing QoQ) for displays, and KRW0.30tr (+47.7%QoQ) for CE in 3Q20.
Accumulate shares on expectations for steep growth in 3Q20 and 1H21
We believe forecasts for sluggish 2Q20 earnings results as well as the slowdown in demand for mobile DRAM in 2Q20 and server DRAM in 3Q20 are already priced in at this point. Going forward, share prices should start to reflect the upbeat outlook for steep earnings growth from 3Q20. We expect to confirm an upturn in demand for mobile and server chips in stages through 2H20.
In 2021, DRAM bit growth is projected to fall to historical lows of 10% for the full year. With demand likely to recover from the COVID-19 shock, we expect to see extreme supply shortages in the DRAM market next year. Samsung Electronics shares tend to move far ahead of actual changes in earnings. We therefore recommend accumulating shares on expectations for steep growth in 3Q20 and 1H21, instead of remaining concerned over 2Q20 results. Our target price is unchanged at KRW68,000.