2Q22 Forecast: OP of KRW14.5tn
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Target price cut 13% to KRW75,000
We cut our TP by 13% to KRW75,000 (12m fwd BVPS x 1.47x target P/B) on (1) a decline in 3y avg. ROE (12.3%→11.6%) on lowered earnings estimates and (2) change in COE (8.47%→8.86%). Yet, we maintain BUY, as (1) the recent drop in stock price has been excessive considering earnings fundamentals (annual OP estimated at KRW50tn) and (2) the limited increase in chip supply suggests industry conditions will not deteriorate as fast as expected.
2Q22 forecast: OP of KRW14.5tn
We revise down 2Q22E earnings, as MX (smartphones) and CE (TVs/home appliances) should underperform amid falling demand. We see shipments slumping for smartphones (63mn units, -17% QoQ) and TVs (9mn units, -28% QoQ), while OP from small-/mid-size OLED panels should reach KRW1.3tn (flat QoQ) thanks to brisk iPhone 13 Pro/Pro Max sales. Overall, we forecast 2Q22 revenue at KRW76.8tn (-1.3% QoQ, +20.6% YoY) and OP at KRW14.5tn (+2.8% QoQ, +15.5% YoY; 18.9% OPM), which is below the market consensus of KRW15.2tn. In terms of OP by division, we forecast Semiconductor at KRW10.4tn, MX at KRW2.6tn, DP at KRW0.9tn, CE at KRW0.5tn and Harman at KRW0.1tn.
Hard landing unlikely for chip industry in 2H22
Amid growing macro uncertainty (e.g., inflation, supply chain issues, Russia-Ukraine war), we believe solid server/iPhone demand will not compensate for falling smartphone/PC demand. We see DRAM/NAND prices falling in 2H22 on (1) parts shortage (e.g., N/W IC, PMIC) and erosion of server shipments due to the postponed release of Intel’s Sapphire Rapids and (2) an acceleration of decline in smartphone/PC demand in China. Yet, we do not see chip industry conditions deteriorating as fast as they did in 4Q18 given (1) low chip inventory levels (three weeks) and (2) limited chip capacity increases in 2023.