Declines in Smartphone/TV Shipments Considerable
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY, target price of KRW75,000
We maintain BUY and 12m TP of KRW75,000 on SEC. We continue to have a positive outlook, as:
(1) the stock has dropped to a historical low of 1.1x P/B, which seems excessive even with 2Q22 shortcomings and
(2) a limited increase in memory chip supply expected in 2023 should reduce memory chip cycle volatility, preventing a repeat of the industry hard landing in 4Q18.
Meanwhile, we revise down 2022E NP (attributable to controlling interests) by 7% to KRW40.8tn to reflect the adverse impact that macro uncertainties is expected to have on smartphone/PC demand and DRAM/NAND prices.
2Q22P OP of KRW14tn falls short of market consensus
SEC reported 2Q22P revenue of KRW77tn (-1.0% QoQ, +20.9% YoY) and OP of KRW14tn (-0.6% QoQ, +11.7% YoY; 18.2% OPM). OP fell short of the KRW14.7tn market consensus because:
(1) weak IT demand kept DRAM/NAND bit growth slower than expected at +7% QoQ/flat QoQ and
(2) declines in smartphone/TV shipments were considerable, at -17% QoQ/-28% QoQ.
On the other hand, despite low-demand seasonality, DP saw small-/medium-size OLED OP remain flat QoQ thanks to brisk iPhone 13 sales. In terms of OP by division, we estimate Semiconductor at KRW10tn, MX at KRW2.6tn, DP at KRW0.9tn and CE at KRW0.5tn.
Limited increase in chip supply in 2023 to impact supply-demand dynamics
For 2H22, we forecast OP to retreat to KRW26.2tn (-12% YoY) because of:
(1) DRAM/NAND price declines and
(2) set shipment declines (e.g., smartphones, TVs, home appliances).
By quarter, OP should come in at KRW14.5tn (-8% YoY) in 3Q22 and KRW11.7tn (-16% YoY) in 4Q22. Price declines for chips in 2H22 seem inevitable considering:
(1) the accelerating contraction of Chinese smartphone demand and
(2) delays in server memory chip purchases resulting from the postponed release of Intel’s new Sapphire Rapids CPU.
For 2023, we expect demand-related uncertainties to persist. However, we see the three DRAM majors increasing chip shipments by an avg. of 15%. The limited increase in supply should curb memory chip cycle volatility, which should have a significant impact on supply-demand dynamics.