1Q22 OP Estimated at KRW13.2tn (+41% YoY)
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY, target price of KRW100,000
We maintain BUY and TP of KRW100,000 on Samsung Electronics (SEC). We see chip demand topping supply in 2022 because of rebounding purchases by the four North American data center operators and PC manufacturers; SEC should see DRAM demand increase 20-22% YoY, outpacing the company’s output growth of 16% YoY. With China’s recent lockdown of Xi’an disrupting DRAM and NAND production, SEC has reduced wafer input at its Xi’an plant. Also, Micron is experiencing trouble sustaining output of its DRAM back-end processing lines. Such production issues are eroding chip inventories, which will likely cause major set makers to stock up their chip inventories and have a positive influence on SEC’s bargaining power in 1H22.
1Q22E OP of KRW13.2tn (+41% YoY)
SEC posted 4Q21P revenue of KRW76tn (+2.7% QoQ, +23.5% YoY) and OP of KRW13.8tn (-12.8% QoQ, +52.5% YoY; 18.2% OPM), which fell short of the market consensus of KRW15tn; OP looks to be in line when excluding special bonuses paid in 4Q21. By segment, Semiconductor OP stood at KRW9.0tn, IM OP at KRW2.8tn, DP OP at KRW1.2tn, CE OP at KRW0.7tn and Harman OP at KRW0.1tn. We forecast 1Q22E OP at KRW13.2bn (-4.1% QoQ, +41.0% YoY), which would mark the best 1Q earnings since 1Q18 (KRW15.6bn); the solid performance should be attributable to IM and CE’s new product releases and stronger-than-expected chip prices.
Chip orders from North American data centers maintained at brisk levels
Despite downtrending chip prices in 1Q22, the four North American data center operators are continuing to increase chip orders, maintaining high levels. We believe the increase is driven by: (1) preemptive server investments to prepare for metaverse platforms; (2) falling DRAM inventories at server companies (8-9 weeks in 4Q21 → 6-7 weeks in 1Q22); and (3) lower-than-normal memory chip inventories at chipmakers (2 weeks). Even if DRAM contract prices continue sliding throughout 1H22, the pace of the decline should peak in 1Q22. We forecast 2022 revenue at KRW300tn (+7.5% YoY) and OP at KRW54.2tn (+5.2% YoY).