Bottoming Out
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Expect reduction in chip capacity, record OP for DP
We maintain BUY and TP of KRW75,000 on SEC. We maintain a positive outlook given:
(1) the stock is bottoming out after valuations fell to a historic low (1.1x P/B);
(2) despite an inevitable 8-10% drop in DRAM/NAND prices, the memory chip industry is unlikely to see another 4Q18 hard landing, as we expect the three semiconductor majors to reduce 2023 capex plans; and
(3) we expect DP to post record OP of KRW5.1tn this year thanks to brisk iPhone 13 sales and growing iPhone 14 panel orders.
3Q22 forecast: OP to reach KRW13.8tn with flexible OLED lines operating at full capacity
We forecast 3Q22 revenue at KRW81.1tn (+5.3% QoQ, +9.6% YoY) and OP at KRW13.8tn (-1.5% QoQ, -12.6% YoY; 17.0% OPM). 3Q22 OP should remain in line with 2Q22 OP as lower ASPs (DRAM -8% QoQ; NAND -10% QoQ) offset bit growth (DRAM +11% QoQ; NAND +15% QoQ). DP should post OP of KRW1.6tn (+78.8% QoQ) as utilization of flexible OLED panel lines ramps up (60% in 2Q22→100% in 3Q22) on growing Apple orders (iPhone 14). By division, we forecast Semiconductor OP at KRW8.8tn, MX at KRW2.8tn, DP at KRW1.6tn, CE at KRW0.5tn and Harman at KRW0.1tn.
Semiconductor stocks typically lead industry conditions by six months, so stock to become more attractive as year-end approaches
For 2023, we see the three global DRAM majors posting bit growth of 15%— a relatively limited capacity increase. Demand uncertainty should reduce memory chip cycle volatility and favorably impact supply-demand dynamics. We expect global set makers to adjust inventory in 3Q22-1H23, improving supply-demand dynamics from 2H23. As such, we view SEC’s excessive stock price decline as a compelling buying opportunity for long-term investors. Semiconductor stocks typically lead industry conditions by six months, so the stock should become more attractive as the year-end approaches.