Price Floor Expected to Rise
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Concerns over hard landing for memory chip market fading; stock passing through trough
— On Jul 21, SEC stock closed at KRW61,800, up 2.1% from the previous close and 8.4% for the month. We believe the stock has bottomed out and the price floor will rise toward year-end given the following:
(1) Considering the three global DRAM majors have conservative capex plans for 2023, we see the current decline in memory chip prices decelerating from 1Q23.
(2) The stock appears to be rebounding, as valuations have fallen to historical lows (1.1x P/B; KRW56,400 on Jul 6).
The three majors’ capex cutbacks seem aimed at limiting supply growth, significantly assuaging concerns of a hard landing for the memory market in 2023.
Attractive investment target for long-term investors
— For 2023, we forecast the three majors to record overall bit growth of 15%. We believe limited capacity expansion amid demand uncertainty should ease volatility in the memory chip cycle and benefit supply-demand dynamics. As such, long-term investors should look at SEC now as an attractive investment given that the stock is bottoming out and investors are well aware that semiconductor stocks typically lead industry conditions by six months.