Demand Uncertainty Key to Stock Performance
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY, target price of KRW85,000
We maintain BUY and 12m TP of KRW85,000 for SEC, as the recent decline in valuation has been excessive while 2Q22 performance should be solid amid growing memory demand from datacenters, which comprise more than a third of SEC DRAM revenue. Demand growth should be sustained to 3Q22 given sound memory prices (2Q22 DRAM/NAND at -2% QoQ/+5% QoQ). Also, compared to its competitors, SEC should be able to more effectively shield itself from declining smartphone shipments to China; in terms of share of global mobile DRAM revenue, Chinese smartphone makers should take less than half of what they did in 2021. SEC revenue from Mobile Experience (MX) and Apple-related business should markedly expand.
2Q22 forecast: OP of KRW15.1tn (+20% YoY)
We forecast 2Q22 revenue/OP at KRW78.3tn (+0.6% QoQ, +22.9% YoY)/KRW15.1tn (+7.1% QoQ, +20.3% YoY; 19.3% OPM), which would mark the highest OP in the past three quarters (vs. 3Q21 OP of KRW15.8tn). In terms of divisional OP, we estimate Semiconductor at KRW10.3tn, MX/NW at KRW3.5tn, DP at KRW0.7tn, CE at KRW0.5tn and Harman at KRW0.1tn. DRAM/NAND ASPs should remain sound until 3Q22 on capacity ramp-up at four North American datacenters.
Demand uncertainty key to stock performance
The stock has been sluggish amid macro uncertainty (i.e., China’s lockdown, inflation, the Russia-Ukraine war). For a meaningful rebound, more visibility on 2H22 semiconductor demand is needed. Semiconductor earnings will most likely to top market expectations, but management is likely to focus more on profitability than market share. Accelerating advanced node migration, amid supply constraints, coupled with strong server memory demand (i.e., biggest server upgrades in five years), should ease stock price volatility.