Share Price Precedes Industry by 6 Months
The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. -- Ed.
We view worries towards a memory downcycle in 2022 as already being mostly digested by a recent share price decline. Given such, we advise an investment strategy towards SEC with an uptrend in mind rather than a further downturn. We favorably view the IT giant’s flexible approach to 2022 memory capacity investment.
Share price precedes industry by six months
We believe that worries towards a memory semiconductor downcycle over 4Q21~1H22 are already mostly baked into Samsung Electronics (SEC)’s share price, which has fallen over the past ten months. Considering the fact that its share price tends to precede the industry by about six months, an investment strategy that considers an uptrend rather than a further downturn is appropriate at this time.
Adhering to a Buy rating, we raise our TP on SEC to W100,000. The firm announced 3Q21 sales of W73.98tn (+16% q-q), OP of W15.82tn (+26% q-q), and NP (excluding minority interests) of W12.29tn (28% q-q). Earnings improvement was led by healthy memory semicon shipments and prices.
Flexible memory capacity investment strategy for 2022
During its earnings conference call, SEC noted that DRAM shipment growth in 4Q21 will likely be flat, and that it will determine the size of memory semicon capacity investment in 2022 through very careful review in consideration of demand. If investments are made more conservatively than current market expectations, a predicted decline in memory semicon prices next year should end in 1H22, and supply-demand conditions will likely improve from 2H22.
We positively view improved fundamentals at SEC’s foundry, IM, and display businesses. Its foundry business turned to profit in 3Q21. Foldable smartphone sales recorded more than 3mn units, with sales likely to increase in 4Q21. The display domain showed near 100% utilization rates for both rigid and flexible displays, benefiting from increased sales of new products at clients and foldable smartphones. We cut our 4Q21 OP forecast to W15.31tn (-3% q-q) in light of falling memory semicon prices and entry into the off-seasonality. Quarterly OP is expected to decline until 2Q22, before picking up again from 3Q22.