By Next Year, Samsung Electronics '60,000 Won Stock?'... "Buy" VS "Wait"

Semiconductor Support Law Benefits "Bottoms Rising Toward Year-End... Now Is the Buying Time
Profit Share in KOSPI Shrinks Until Next Year... Waiting for Profit Connection"

[Asia Economy Reporter Lee Seon-ae] The securities industry's views on Samsung Electronics, the leading stock in the domestic market, are divided. Some investment opinions see now as a 'buying opportunity (timing)' as the stock price is expected to rise toward the end of the year, benefiting from the $52 billion (about 68 trillion won) U.S. Semiconductor Support Act. On the other hand, there is advice to adopt a wait-and-see strategy, arguing that even if the Semiconductor Support Act passes and Samsung Electronics increases investment, it will take time to translate into profits, so there is no immediate need to include it in portfolios. This judgment is based on the fact that Samsung Electronics' share of net profit in the KOSPI is decreasing, meaning that the domestic index until the second half of next year will not be led by Samsung Electronics. It suggests that it will take considerable time to solidify the '60,000 won Samsung Electronics' level, so investing in other stocks is much better to save opportunity costs for individual investors.

On the 28th, the day Samsung Electronics announced its Q2 earnings, the stock opened at 62,300 won. After opening, it rose to 62,600 won but soon gave back the gains and showed less than 1% increase. Compared to the intraday all-time high of 96,800 won recorded in January last year, it is far behind, but compared to the 52-week intraday low of 55,700 won on the 4th of this month, it is maintaining the '60,000 won Samsung Electronics' level well. The stock price started to rebound after falling to the historical valuation low of price-to-book ratio (PBR) 1.1 times, but the key point is how long it stays at the '60,000 won Samsung Electronics' level.

KB Securities expects the stock price bottom to gradually rise toward the second half of the year. ▲Global semiconductor companies' memory inventory is expected to peak in the first half of next year, so long-term investors are advised to start investing considering the six-month price leading nature of semiconductor companies ▲The production shipment growth rate of the three global DRAM companies in 2023 is estimated to be around 15%, and the limited supply increase is expected to reduce volatility in the memory semiconductor cycle, positively affecting supply and demand. Furthermore, the mid-to-long-term benefits of the U.S. Semiconductor Support Act are a driving force to raise the stock price bottom. The U.S. Semiconductor Support Act has passed the Senate and is expected to take about two weeks until it is signed by the president and enacted after approval by the House of Representatives. In line with this, Samsung Electronics plans to increase investment in the U.S., starting with the groundbreaking of a new foundry plant worth $17 billion in Taylor, Texas, in the second half of the year. According to foreign media reports, Samsung Electronics recently submitted a tax benefit application related to a $200 billion investment over the next 20 years in Texas.

Kim Dong-won, a researcher at KB Securities, said, "If the Semiconductor Support Act passes, Samsung Electronics is expected to benefit mid-to-long term from localizing production bases through various incentives, expanding its customer base," adding, "Despite earnings slowdown expected from a quarterly average 10% decline in DRAM and NAND prices in the second half, the stock price bottom is expected to gradually rise toward the end of the year."

On the other hand, there is also advice that a wait-and-see approach is necessary given Samsung Electronics' characteristics. This is because it is typical for foreign demand to increase and the stock price to rise when Samsung Electronics' profits increase after investment, but a Samsung Electronics-centered index market forms only when Samsung Electronics' profit share in the KOSPI exceeds 25%. This year, Samsung Electronics' expected net profit consensus (average forecast) is 43 trillion won, accounting for 24% of the KOSPI. Next year, it is 42 trillion won, accounting for 22% of the KOSPI.

Kim Soo-yeon, a researcher at Hanwha Investment & Securities, said, "Samsung Electronics is a company with a high rate of investment recovery into profits, but even if the Semiconductor Support Act passes and Samsung Electronics increases investment, it will take time to translate into profits," advising, "Investors reduced their Samsung Electronics weighting because expectations for semiconductor profits have lowered, so there is no need to rush to include Samsung Electronics in portfolios until next year's profit consensus changes direction."

Moreover, since the current KOSPI earnings are being revised downward, an investment strategy considering the opportunity cost of stocks is necessary. Kim Byung-yeon, head of investment strategy at NH Investment & Securities, said, "Considering further downward revisions of earnings forecasts and recurring earnings shocks every fourth quarter, the actual KOSPI net profit in 2022 is expected to be in the 160 trillion won range," adding, "Considering this, the index is expected to move sideways within a narrow box range, so a cautious investment strategy is required."

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