Samsung Electronics Stock Has Valuation Merit
Samsung Electronics' stock price closed at a record high of 66,300 won on Nov. 16, driving up the company’s market capitalization to an all-time high of about 394 trillion won. Analysts say that the stock price was pushed up by a recovery in the semiconductor industry, expectations for Samsung Group's dividend expansion, and massive purchases by foreign investors amid the flow of funds towards emerging countries. Accordingly, expectations are growing that Samsung Electronics will be able to overtake TSMC in market cap soon.
However, TSMC also saw its stock price soar. On the same day, TSMC's market capitalization reached about 488 trillion won (12.55 trillion Taiwan dollars). TSMC's market capitalization was 94 trillion won more than that of Samsung Electronics in terms of common stocks and 45 trillion won more even when Samsung Electronics’ preferred stocks worth 49 trillion won are included.
Although Samsung’s stock price rose 20 percent compared to the beginning of 2020, TSMC shares soared 65 percent. It is somewhat unreasonable to simply compare the two companies’ stock prices. The Korean stock market is generally undervalued for geopolitical reasons, a phenomenon dubbed the “Korea discount.” Furthermore, Samsung Electronics produces finished products such as smartphones and home appliances, while TSMC is exclusively engaged in the foundry business. However, TSMC is a few steps ahead of Samsung Electronics when seen in terms of the foundry business alone.
If Samsung Electronics' market capitalization is calculated based on the won-dollar exchange rate (1,109.3 won for one U.S. dollar) on the day, it reaches US$356.8 billion. According to Market Watch, TSMC’s market capitalization reached US$420.2 billion. This means that TSMC eclipsed Samsung Electronics in market capitalization by US$60 billion.
Market analysts say Samsung Electronics has a valuation merit. The company's stock price did not rise as much as other semiconductor stocks in 2020. The stock price of TSMC soared 65.34 percent. So did those of U.S. semiconductor stocks such as NVIDIA (125.34 percent), Qualcomm (68.08 percent), and AMD (70.53 percent). Samsung Electronics and SK Hynix rose only 20.11 percent and 3.48 percent, respectively.
In other words, Samsung Electronics is undervalued compared to its competitors and has a valuation merit. In fact, Samsung Electronics is significantly undervalued as its PER is 20 times while that of TSMC is 31 times.
A rebound in memory chip prices and an increase in the attraction of foreign investors due to a strong Korean won are also positive news for Samsung Electronics. In the foundry sector, Samsung Electronics is threatening TSMC by winning large orders from IBM, Qualcomm and NVIDIA. Some experts in the market predict that a supply shortage by TSMC in charge of entrusted production of 5-nano semiconductor chip "M1" developed by Apple, Samsung Electronics may win an order from Apple.
However, "It is difficult to say that Samsung Electronics will catch up with TSMC right away because a structure where Samsung Electronics receive an order when TSMC does not meet all order volume in the under-7nm segment is still maintained and no specific discussion has been made regarding M1," a researcher at Hi Investment & Securities, pointed out,
TSMC took a 53.9 percent share of the foundry market in the third quarter, while Samsung Electronics accounted for only 17.4 percent in the same period, market research company TrendForce said. The gap widened as TSMC and Samsung Electronics posted 51.5 percent and 18.8 percent, respectively as Samsung Electronics failed to break down a 20-percent barrier in the previous quarter. This shows a widening gap in market capitalizations and coupling.
Their duel in micro-fabrication processes is moving toward the under-5-nm segment. TSMC landed big order volume from Apple by introducing a 5-nm chip first, and Samsung is closely trailing the Taiwanese semiconductor giant by releasing a 5-nm chip called Exynos 1080 on Nov. 12. Samsung is preparing itself to challenge TSMC again in the 3-nm segment scheduled to come out in 2022.