[Click eStock] Samsung SDS Expected to Grow Strongly... Sufficient M&A Funding

[Asia Economy Reporter Lee Myunghwan] Hyundai Motor Securities announced on the 28th that it has newly issued a Buy rating and a target price of 200,000 KRW for Samsung SDS, based on high sales growth prospects and excellent financial structure.

Hyundai Motor Securities forecasts Samsung SDS's sales this year to increase by 13.5% year-on-year to 15.4763 trillion KRW, and operating profit to rise by 27.1% to 1.0269 trillion KRW. It analyzed that non-affiliated sales will increase by 900 billion KRW, accounting for 23% of total sales, up 4 percentage points from the previous year.

By business segment, the logistics business, which is expected to see freight increases until the first half of this year, will drive two-thirds of the growth, and in the IT services sector, cloud management services (MSP) and data centers (IDC) will lead growth, Hyundai Motor Securities analyzed. The high growth in operating profit is due to the payment of 85 billion KRW in group performance bonuses last year; excluding this, it is expected to record a healthy growth rate of 15% compared to last year.

Hyundai Motor Securities analyzed that Samsung SDS's average annual sales growth rate of 10.8% over the past three years is a favorable level considering the sales scale of over 10 trillion KRW. Operating profit has been somewhat stagnant, fluctuating between 800 billion and 900 billion KRW, which is explained by the growth being driven by the low-margin logistics business. Researcher Kim Hyunyong of Hyundai Motor Securities said, "Since logistics will contribute more to growth this year as well, a dramatic improvement in profit margin is expected to be difficult, but as long as IT service margins remain stable at 13-14%, a margin in the high 6% range is quite achievable."

The sufficient financial capacity secured for corporate mergers and acquisitions (M&A) was also highly evaluated. As of the end of last year, Samsung SDS's net cash without debt stood at 4.6 trillion KRW, and its debt ratio was 41%. Hyundai Motor Securities assessed that this is an ultra-solid financial structure and, in terms of available funds, is the second largest among domestic internet and software companies after Naver. Researcher Kim analyzed, "Expansion into new businesses such as blockchain and artificial intelligence (AI), as well as cloud, smart factory, and logistics sectors where high growth is possible and synergy with existing businesses can be realized, is expected."

Regarding the basis for issuing a Buy rating, Researcher Kim explained, "Double-digit sales growth led by non-affiliated businesses, valuation at a historic low point, net cash amounting to 45% of market capitalization, and an aggressive M&A stance are the grounds."

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