Earnings Far Exceed Market Consensus
The authors are analysts of Shinhan Investment Corp. They can be reached at doyeon@shinhan.com and sungjun.na@shinhan.com, respectively. -- Ed.
2Q20 preliminary OP reported at KRW8.1tr (+25.8% QoQ)
Samsung Electronics released preliminary results for 2Q20 at operating profit of KRW8.1tr (+25.8%QoQ) on sales of KRW52.0tr (-5.4% QoQ), far exceeding the market consensus of KRW6.5tr. Strong earnings are attributable to: 1) higher-than-expected smartphone and TV shipments amid limited marketing spend; and 2) one-off gains (compensation for missed order minimum) at the display division.
By division, operating profit is estimated at KRW5.6tr (+39.5% QoQ) for semiconductors, KRW1.7tr (-36.1% QoQ) for IT & mobile communications (IM), KRW0.3tr (positive swing QoQ) for displays, and KRW0.6tr (+25.7% QoQ) for consumer electronics (CE).
3Q20 OP forecast at KRW9.0tr (+11.5% QoQ)
For 3Q20, we forecast sales at KRW62.1tr (+18.7% QoQ) and operating profit at KRW9.0tr (+11.5% QoQ). Earnings from IM and display divisions are expected to swiftly recover from the impact of the COVID-19 pandemic, with steep improvement already noted in smartphone shipments and OLED capacity utilization rates.
By division, operating profit should reach KRW5.5tr (-0.3% QoQ) from semiconductors, KRW2.2tr (+31.0%QoQ) from IM, KRW0.8tr (+188.3% QoQ) from displays, and KRW0.5tr (-20.4% QoQ) from CE in 3Q20.
Recommend buying on forecasts for sharp earnings growth in 1H21
Samsung Electronics has cut back on marketing spend but is currently seeing sharp improvement in demand for its smartphones, clearly demonstrating the strength of its brand value. The uptrend in demand also confirms the importance of smartphones as a consumer staple in the fourth industrial revolution.
Meanwhile, we believe the market is now fully aware of a possible slowdown in server DRAM demand in 3Q20. However, with DRAM maker inventory levels estimated at roughly 3 weeks, the actual decline in DRAM ASP levels in 2H20 is likely to be smaller than the market fears. Expecting an upturn in DRAM ASP within 1H21, we recommend accumulating shares in Samsung Electronics.