Morgan Stanley Lowers Samsung Electronics Target Price to 89,000 Won

[Asia Economy Reporter Hwang Junho] Domestic and international securities firms have been consecutively lowering their target prices for Samsung Electronics and SK Hynix. Both stocks, which saw significant declines due to net selling by foreign investors the previous day, continued to show a downward trend on this day as well.

Morgan Stanley SK Hynix 156,000 KRW -> 80,000 KRW

[Image source=Yonhap News]

On the 11th, Morgan Stanley issued a report titled "Memory - Winter is Coming," stating that "the momentum of DRAM prices is weakening," and downgraded the target prices of global semiconductor stocks. For SK Hynix, the target price was cut from 156,000 KRW to 80,000 KRW. Samsung Electronics' target price was lowered from 98,000 KRW to 89,000 KRW, and Samsung Electronics Preferred shares were reduced from 84,000 KRW to 77,000 KRW.

Assuming that the DRAM market recession will begin in the first quarter of next year and that oversupply due to DRAM inventory will persist for about a year, demand is expected to be suppressed and not to rise further. Accordingly, investment preference is higher for NAND flash than for DRAM, and SK Hynix's investment rating was downgraded to 'underweight.'

Goldman Sachs also expressed concerns in successive reports that the weakness in DRAM prices could continue into next year. Citing market research firm TrendForce's forecast, they projected that due to high inventory levels at demand points, the fixed transaction price (wholesale price) of PC DRAM in the fourth quarter of this year is expected to decline by about 0-5% compared to the previous quarter, and that rapidly changing DRAM market conditions could reduce semiconductor companies' earnings per share (EPS).

Hong Kong-based securities firm CLSA, in a report dated the 9th (local time), downgraded Samsung Electronics' investment rating from 'buy' to 'underperform' (underweight) and lowered the target price from 110,000 KRW to 86,000 KRW. SK Hynix's investment rating was also adjusted to underperform, and its target price was reduced from 172,000 KRW to 123,000 KRW. This adjustment was based on the judgment that PC and smartphone OEM companies have begun to ease memory semiconductor inventory accumulation, and data centers' inventory buildup is expected to normalize after the fourth quarter of this year, leading to an unfavorable supply-demand structure.

Domestic Securities Firms Also Downgrade

[Image source=Yonhap News]

Hana Financial Investment lowered SK Hynix's target price from 165,000 KRW to 130,000 KRW on the 12th, assuming that DRAM prices will fall by 15% over six months starting from the fourth quarter of 2021. This downgrade is based on the premise that the recent decline in PC DRAM spot prices triggered a server DRAM price drop, similar to the Wag the Dog phenomenon, which could limit price rebounds.

Kim Kyung-min, a researcher at Hana Financial Investment, explained, "When PC DRAM spot prices fall, demand points wait for prices to drop further. They do not necessarily need to stock up on products today that might be cheaper tomorrow," adding, "We assumed this inertial purchasing pattern will continue into next year."

According to the Korea Exchange, as of 9:55 AM on the 12th, Samsung Electronics was trading at 77,600 KRW, down 1.15% from the previous day, and SK Hynix was at 101,500 KRW, down 3.79%.

Net selling by foreign investors remained prominent following the previous day. Foreign investors sold Samsung Electronics shares worth 1.0492 trillion KRW the day before, causing the stock price to drop 2.12%. SK Hynix also saw foreign investors conduct net sales worth 673.7 billion KRW, resulting in a decline of 6.22%, a larger drop than during the COVID-19 crisis.

Further Declines Are Limited

However, Goldman Sachs presented a positive long-term outlook. Although weakening PC demand and rising inventory levels may negatively impact PC DRAM contract prices in the fourth quarter of this year, server DRAM prices are expected to continue rising due to increased server demand and higher memory content per box. Furthermore, PC memory accounts for about 15% of the industry, while servers account for about 30%, so even if PC DRAM prices fall in the fourth quarter, the positive impact from servers is expected to outweigh the negative impact from PCs during the quarter. Goldman Sachs set the target price for Samsung Electronics at 107,000 KRW and for SK Hynix at 77,000 KRW.

Researcher Kim said, "As much as earnings estimates are a concern, investment ratings are also challenging. Interest in the memory semiconductor sector has declined, making a meaningful rebound to pre-peak levels by year-end difficult. However, since stock prices have sharply fallen in a short period reflecting fear, the possibility of further declines is limited, so we maintain a 'buy' rating."

Lee Jaeyoon, a researcher at Yuanta Securities, also stated, "If supply shortages in non-memory semiconductors continue to disrupt production in downstream industries, it could lead to a temporary demand gap for memory semiconductors. For this reason, memory customers' purchasing behavior has become somewhat cautious, and uncertainty about semiconductor price forecasts for the fourth quarter has increased." However, he analyzed, "Since major memory manufacturers (Samsung Electronics, SK Hynix, etc.) hold less than one week's worth of inventory and production bottlenecks are intensifying, the possibility of a sharp price drop or prolonged downcycle is low."

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