[Click eStock] Samsung Electronics, Set Demand Recovery Faster Than Expected... 2Q Earnings Expected to Exceed Estimates

2Q Sales 54.6 Trillion KRW, Operating Profit 6.7 Trillion KRW Forecast
Sales Down 2.6% YoY, Operating Profit Up 2%
Faster-than-Expected Recovery in Demand for Smartphones and TVs

[Asia Economy Reporter Minwoo Lee] An analysis has emerged that Samsung Electronics will post earnings in the second quarter of this year that exceed existing securities firms' forecasts. This is because the recovery speed of set demand, which had decreased due to the impact of the novel coronavirus infection (COVID-19), was faster than expected, and smartphone shipments also increased beyond expectations.

On the 25th, Korea Investment & Securities predicted that Samsung Electronics would achieve sales of 54.665 trillion KRW and operating profit of 6.734 trillion KRW in the second quarter of this year. Sales are expected to exceed initial forecasts by 5.9%, and operating profit by 4.8%. Compared to the second quarter of last year, sales decreased by 2.6%, but operating profit increased by 2%. Researcher Jongwoo Yoo of Korea Investment & Securities explained, "The recovery of set demand such as smartphones and TVs in the US and Europe has been steeper than expected, resulting in sales volume and profits both exceeding expectations. Considering that the one-time profit recognition in the Display (DP) division was postponed from the initially expected second quarter to the third quarter, operating profit exceeds the initial forecast by 17.7%."

Demand for home appliances and TVs also exceeds initial expectations. In the case of TVs, sales recovered by strengthening online marketing in response to offline store closures. The second quarter shipment volume was 8.45 million units, showing a decrease of only 19.2% compared to the previous quarter and 8.8% compared to the previous year, which is considered a solid performance. Home appliances secured demand beyond expectations due to the domestic air conditioner peak season effect. Operating profit in the home appliance division is better than expected. The second quarter CE division operating profit was forecasted at 559 billion KRW.

The smartphone division is also recovering. The second quarter smartphone shipment volume is expected to exceed initial forecasts at 55 million units. Since the low point in April, sales recovery in advanced countries has been faster than expected, and channel inventory at the end of the first quarter was low, resulting in a steep recovery in shipment volume due to demand recovery. Marketing expenses were not large, so the IM division operating profit is expected to be 1.736 trillion KRW. Despite the COVID-19 crisis, this is a 14.5% increase compared to the previous year.

The semiconductor division's second quarter operating profit is expected to slightly exceed initial forecasts at 5.146 trillion KRW. Operating profits of the System LSI and Foundry business units are expected to decrease by about 60.5% compared to the previous quarter due to the slowdown in smartphone shipments. Researcher Yoo explained, "Reflecting the slowdown in memory market conditions due to decreased demand for server memory semiconductors in the second half, the increase in average selling prices (ASP) of DRAM and NAND in the third and fourth quarters will be less than expected."

Against this backdrop, Korea Investment & Securities maintained a 'Buy' investment opinion on Samsung Electronics with a target stock price of 62,000 KRW. The closing price the previous day was 52,900 KRW.

This content was produced with the assistance of AI translation services.