Macro Uncertainties Clouding 2H22 Demand Visibility
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY but lower target price by 5.6% to KRW85,000
We lower our TP by 5.6% to KRW85,000 (12m fwd BVPS x 1.7x target P/B) to reflect a drop in 3y avg. ROE (13.3%→12.3%) attributable to revised down earnings estimates reflecting macro uncertainties. We maintain BUY, however, as memory chip demand from North American data centers is likely to remain strong. While migration to advanced processes undercut output, chip supply growth was limited. We see little downside risk, as volatility in the semiconductor cycle should fall and the company’s valuation looks decent relative to earnings.
2Q22 forecast: OP at KRW15.1tn (+20% YoY)
SEC posted 1Q22 revenue/OP of KRW77.8tn (+1.6% QoQ, +19.0% YoY)/KRW14.1tn (+1.8% QoQ, +50.5% YoY; 18.2% OPM). For 2Q22, favorable chip prices should result in revenue/OP of KRW78.3tn (+0.6% QoQ, +22.9% YoY)/KRW15.1tn (+7.1% QoQ, +20.3% YoY; 19.3% OPM); OP should maintain growth until 3Q22 (KRW16.0tn in 3Q22→KRW14.1tn in 4Q22). For OP by segment, Semiconductor should reach KRW10.3tn, MX/NW KRW3.5tn, DP KRW0.7tn, CE KRW0.5tn and Harman KRW0.1tn. Output disruptions at competitors and high-demand seasonality should keep DRAM/NAND ASP strong until 3Q22 before weakening in 4Q22. For the full year, we forecast revenue/OP at KRW313.8bn (+12.2% YoY)/KRW59.4bn (+15.1% YoY; 18.9% OPM).
Macro uncertainties clouding 2H22 demand visibility
Macro uncertainties in 1H22 (i.e., accelerating inflation, supply network disruption from China’s lockdown, the Russia-Ukraine war) are clouding 2H22 demand visibility. Despite recent earnings improvements, SEC and other global chip stocks seem to be struggling, with uncertainties raising doubts on whether chip prices will remain robust throughout 2H22. Server chip demand from North American data centers is still brisk thanks to the onset of the first replacement cycle in five years. However, server demand is unlikely to be sufficient to compensate for falling chip demand from smartphones, particularly in China, and PCs.