2Q20 Results Solid
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
SEC’s 3Q20 OP is expected to continue increasing to W9.1tn (+12% q-q). Earnings at the IM, display, and CE divisions should improve on IT peak seasonality. But, the semicon division will likely feel adverse effects from a predicted 2H20 slowdown in data center investment.
Announces solid 2Q20 results
Adhering to a Buy rating on Samsung Electronics (SEC), we raise our TP from W66,000 to W73,000 as we revise up our earnings estimates for 2020~2022 and change our valuation base year (2020E → 2021F). The company’s 2021F P/E sits at 8.7x, a level suggesting undervaluation versus global competitors. In its Jul 30 earnings call, SEC announced its 2Q20 results, recording sales of W53.0tn (-4% q-q), OP of W8.1tn (+26% q-q), and NP (excluding minority interests) of W5.5tn (+12% q-q). Data center investment proved brisk in 2Q20, backed by a rise in non-face-to-face demand. Helped by DRAM and NAND price growth, earnings at the semicon division improved. Since May, demand for IT devices, including smartphones and TVs, has rebounded thanks to Covid-19-related government payouts worldwide. As a result, the IM and CE divisions performed well in 2Q20. And, backed by the reflection of one-off profits in excess of W1tn, earnings at the display division picked up as well.
3Q20 OP to improve to W9.1tn (+12% q-q)
SEC’s 3Q20 OP is expected to continue improving q-q to W9.1tn (+12% q-q), with all divisions (excluding semicon) likely enjoying earnings improvement on the entering of IT peak seasonality. In 2H20, earnings at the semicon division are likely to be adversely affected by slowing investment at hyperscalers such as Google, Amazon, and Facebook following a 1H20 surge in investment in response to the rapid growth in non-face-to-face demand. We expect memory prices to fall in 3Q20, particularly for the server DRAM segment. Mobile and graphics DRAM should see healthy supply-demand conditions, helped by the anticipated launch of new smartphones and game consoles. Earnings at the IM and display divisions should benefit from the IT peak season. Backed by the launch of the Galaxy Note 20 and an increase in shipments of the Galaxy M and A series, 3Q20 smartphone shipments are projected to reach 80mn units. We expect the flexible OLED line to see a significant improvement in utilization rate on the launch of new smartphone products by major customers.