Sales of Smartphones, Home Electronics Likely to Be Brisk in 3Q
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY and target price of KRW72,000
We maintain BUY and our 12m TP of KRW72,000 (12m fwd BVPS x 1.75x target P/B) for SEC. 2H20 Semiconductor earnings should decline on: (1) North American datacenters’ inventory destocking and (2) declines in memory prices (DRAM: -7.7%; NAND: -10.1%) stemming from marginal bit growth amid expanding low-/mid-priced smartphone shipments. However, we expect 2H20 OP (KRW18.2tn) to advance 24.9% HoH, with brisk set sales (i.e., smartphones, TVs and consumer electronics) offsetting Semiconductor performance.
3Q20E IM OP at KRW2.8tn (+44.5% QoQ)
SEC unveiled the Galaxy Note 20 and 2nd-generation foldable phones (i.e., Galaxy Folder 2 and Z Flip 5G) at its online Unpacked event on August 5. 2H20 shipments for the Galaxy Note 20/foldable phones are estimated to be on par with their predecessors at 8.6mn/1.3mn units. For 3Q20, we estimate IM smartphone shipments to total 79mn units (+43.6% QoQ) amid new product launches and rising demand in Europe and India. We think growing IM/CE demand will support 3Q20 OP of KRW9.4tn (+21.0% YoY/+15.5% QoQ), which would mark the highest quarterly earnings result since 4Q18 (KRW10.8tn). By division, we forecast 3Q20 Semiconductor/IM/CE/DP OP at KRW5.4tn/KRW2.8tn/ KRW0.8tn/KRW0.4tn.
Quarterly CE OP to top KRW1.0tn for first time
In 2H20, CE earnings should improve amid the COVID-19-induced shift to online purchasing of consumer electronics and TVs, particularly hygiene-related products that promote coronavirus prevention.
(1) CE profitability is well-placed to improve on the back of a reduction in promotional expenses coming from online sales’ growing proportion of sales, which is set to reach 35% in 4Q20 (vs. 25% in 2Q20 and 5% in 2019). (2) 2H20 TV shipments should expand 51% HoH to 27mn units, with QLED TV shipments up 113% HoH at 5.1mn units. We forecast quarterly CE OP to top KRW1.0tn for the first time.