[Click eStock] "Samsung Electronics, Differentiated Profitability in NAND and OLED Businesses"

[Asia Economy Reporter Lee Jung-yoon] KB Securities maintained a buy rating and a target price of 75,000 KRW for Samsung Electronics on the 15th, forecasting that the company’s third-quarter earnings this year will see weakness in the semiconductor sector but strength in the display sector.

Samsung Electronics’ operating profit for the second half of this year is estimated at 23.2 trillion KRW, down 22% year-on-year due to weakened demand and price declines across all business units except for the display division. This is expected to fall about 10% short of the consensus operating profit estimate of 25.6 trillion KRW.

In particular, the semiconductor division is expected to report poor performance due to a larger-than-expected decline in DRAM and NAND shipments and price drops in the second half. The factors behind the memory demand slowdown and price weakness in the second half include reduced demand from end industries such as PCs, smartphones, and servers, as well as conservative inventory policies by customers concerned about an economic slowdown next year. Therefore, memory price weakness is expected to continue until the first half of next year when customers complete inventory adjustments.

Samsung Electronics’ third-quarter sales are expected to increase 8% year-on-year to 79.6 trillion KRW, while operating profit is forecast to decline 22% to 12.4 trillion KRW. This is expected to fall short of the consensus operating profit estimate of 13.4 trillion KRW. Bit growth (bit shipment growth rate) for DRAM and NAND is expected to be sluggish in the third quarter, along with a decline in average selling price (ASP).

However, operating profit in the display division is expected to rise 43% quarter-on-quarter due to a surge in orders for flexible OLED (organic light-emitting diode) panels for the iPhone 14.

KB Securities analyst Kim Dong-won explained, “Despite entering a downcycle in the memory industry and concerns about an economic slowdown, Samsung Electronics is expected to secure differentiated profitability compared to competitors through excellent cost structures in the NAND and OLED businesses.” He added, “In particular, even if NAND prices fall more than 30% in the second half, it is expected to maintain a double-digit operating profit margin due to cost structure improvements.”

He continued, “The OLED business is also estimated to maintain an operating profit margin above 20% due to its exclusive supply position and patent holdings in the flexible OLED sector.” He added, “Especially, the operating profit share of the display business this year is expected to reach the highest level in 10 years since 2012.”

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