Semiconductor Upward Cycle, Still 'In Progress'

Concerns Over High Prices Are Excessive... Strengthening Trend of Earnings Improvement in the Second Half

[Asia Economy Reporter Minwoo Lee] Although semiconductor leading stocks have been showing a sluggish trend, concerns about a peak are considered premature. This is based on the judgment that, unlike the peak in 2017-2018, the possibility of oversupply is low and DRAM profit margins remain at a relatively low level compared to the past.

On the 22nd, KB Securities diagnosed that the semiconductor upcycle is still ongoing under these circumstances. Over the recent three months from March 2 to the day before, the closing prices of domestic semiconductor leaders Samsung Electronics and SK Hynix fell by 4.2% and 15.2%, respectively. This contrasts with the KOSPI, which rose by 3.7% during the same period. KB Securities researcher Juyoung Park explained, "This is because concerns about inflation and the burden of rising interest rates are increasing, while worries about the peak of the semiconductor cycle are intensifying."

However, he pointed out that such concerns are premature. The peak during the peak season of 2017-2018 was formed by a combination of factors including ▲inventory increase due to demand slowdown ▲margin pressure from peak operating profit margins ▲concerns about oversupply caused by large-scale facility investment expansion. But the recent semiconductor upcycle is analyzed to be different.

Researcher Park diagnosed that recent peak concerns reflect fears of set shipment declines due to component supply shortages while semiconductor demand and inventory remain healthy. He said, "In terms of DRAM margins, the peak profit margin in past semiconductor cycles was 60%, whereas the average operating profit margin in the first quarter of this year was 30%, which is still low. Unlike the past two years of large-scale facility investments, timely investments are being made through equipment orders on a six-month basis, so the possibility of oversupply is expected to be limited."

He also viewed the second half performance of Samsung Electronics and SK Hynix positively. He forecast operating profits for the second half to increase by 77% and 108% compared to the first half, reaching 17 trillion KRW and 8 trillion KRW, respectively. Researcher Park explained, "From the second quarter, semiconductor price increases such as DRAM 15% and NAND flash 2% are becoming full-fledged, and cost structure improvements are expected due to yield improvements in 3rd generation (1z) nanometer DRAM and 128-layer NAND production. Along with this, securing a cost structure where DRAM and NAND price increases directly lead to profit growth is estimated."

He also expected operating profits of semiconductor material companies such as Hansol Chemical and SK Materials to increase by 53% and 35%, respectively, compared to the previous year in the second half. The analysis suggests that the performance improvement trend will become more distinct as the second half progresses. Researcher Park said, "Since the beginning of the year, semiconductor sector stock prices have continued to show sluggish trends due to concerns about the cycle peak, but the upcycle is judged to be ongoing. It is expected that the possibility of upward revision of profit growth in the second half is high, and considering that excessive concerns were reflected early and stock prices rested sufficiently in the first half, a rebound after a short-term correction is anticipated."

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