[This Week's Focus] Samsung Electronics, 'Return of the Memory King'... High Expectations for HBM Supply

Samsung Electronics Average Target Price '109,160 KRW'
Memory Prices Rise Due to Supply Shortage
Q2 Operating Profit Surpasses 10 Trillion KRW at Once
HBM Certification Expected in Q3
Stock Price and Performance Expected to Dominate if HBM Delivered

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'The time of Samsung Electronics has come.'

Samsung Electronics recently broke its 52-week high again. On the 8th, Samsung Electronics rose intraday to 88,600 KRW, surpassing the previous 52-week high of 87,100 KRW recorded in the previous session. After closing at 81,800 KRW on the first trading day of July and announcing its preliminary Q2 earnings on the 5th, it is now eyeing the 90,000 KRW mark.

Looking at the stock price trend over the past month (June 7 to July 8), the upward trend is clear. Based on the closing price on the 8th, it rose from 77,300 KRW to 87,400 KRW, a 13.0% increase. During the same period, foreigners and institutions net bought 5.0822 trillion KRW and 746.5 billion KRW respectively, driving the stock price. This contrasts with January when foreigners (-101.1 billion KRW) and institutions (-93.8 billion KRW) were net sellers.

The average target price is also rising. The average target price was 85,238 KRW (one year ago), 93,083 KRW (six months ago), and 109,160 KRW (as of July 8), showing an upward trend. After KB Securities first suggested 120,000 KRW in May, NH Investment & Securities, Korea Investment & Securities, and Kiwoom Securities also raised their target prices to 120,000 KRW this month, about 40% higher than the current stock price. In just one month, both the stock price and market sentiment have turned positive.

Price Increase Due to Memory Supply Shortage... Exchange Rate Also Favorable

The reason for the market’s changed view on Samsung Electronics is its strength in the memory semiconductor sector. Operating profit for Q2 this year on a consolidated basis was 10.4 trillion KRW, a 1452.24% increase compared to the same period last year. Sales reached 74 trillion KRW, up 23.31% year-on-year. The performance exceeded market expectations significantly for the second quarter following the first quarter.

The rise in average selling prices (ASP) of DRAM and NAND improved more than expected, boosting earnings. Kim Kwang-jin, a researcher at Hanwha Investment & Securities, evaluated, "Due to a conservative sales strategy focused on actual demand, shipment growth rates are estimated to be about +5% for DRAM and -2% for NAND, but the blended ASP rose by +18% for DRAM and +21% for NAND, driving profits."

In other words, as prices rose across the entire application product group, the profit leverage effect in the price increase phase began to occur in earnest. This trend is expected to continue into the second half of the year. Demand for sets such as PCs and smartphones, excluding the AI-centered server market, remains moderate. However, with the continued supplier-favorable environment, the price increase trend for memory semiconductors is expected to persist.

According to market research firm TrendForce, DRAM ASP is expected to rise 8-13% in Q3. This is because next year’s production growth rate in the memory industry is likely to remain in the single digits (%) for DRAM. The increased pricing power of suppliers is advantageous for Samsung Electronics.

No Geun-chang, head of research at Hyundai Motor Securities, said, "A reevaluation is needed of Samsung Electronics’ competitiveness, which can generate operating profit of 10.4 trillion KRW in Q2 without supplying high-bandwidth memory (HBM3) to Nvidia," adding, "If the failure to supply HBM3 to Nvidia was a negative factor for the stock price so far, from now on it should be approached as a plus alpha (+α) that can be added to current performance."

HBM Shifts from Negative to Expectation... Delivery Decision Likely in Second Half

The market’s focus is on HBM delivery. HBM is a key semiconductor that forms AI accelerators together with graphics processing units (GPUs). Both semiconductor and market experts point out that Samsung Electronics’ future depends on whether it can supply HBM. The key is supplying HBM to Nvidia, the world’s largest GPU company leading the AI semiconductor market. However, unlike SK Hynix, Samsung Electronics has not passed Nvidia’s HBM quality certification test. This caused SK Hynix’s stock price to surge recently, while Samsung Electronics’ stock price lagged.

Ironically, the changed perception of Samsung Electronics is due to Nvidia’s delay in HBM approval. It confirmed Samsung Electronics’ strength by surpassing 10 trillion KRW in operating profit with memory semiconductors alone, without HBM support. If Samsung Electronics obtains HBM approval, both stock price and performance are expected to reach unprecedented levels.

Kim Rok-ho, a researcher at Hana Securities, said, "Nvidia wants to increase the number of HBM suppliers to meet surging demand, so an opportunity will come to Samsung Electronics," and predicted, "The decision on Nvidia’s supply will be made during Q3."

Park Sang-wook, a researcher at Shin Young Securities, also said, "If about 30% of DRAM production in 2025 is converted to HBM, supply shortages will occur, causing memory prices to rise," and predicted, "Samsung Electronics’ valuation is likely to reflect industry improvement from the second half of this year."

Ryu Young-ho, a researcher at NH Investment & Securities, evaluated, "As the semiconductor cycle benefit strengthens and the possibility of HBM entry increases toward the second half, the discount factors so far will eventually be resolved," adding, "Especially, the attractiveness of Samsung Electronics, which holds a volume advantage, is expected to improve."

Exchange Rate Also Helpful... Earnings Outlook and Target Price Upgraded

The won-dollar exchange rate is also considered favorable for Samsung Electronics. A weaker won improves export price competitiveness. The average won-dollar exchange rate in Q2 2024 was about 1,371 KRW, the highest level since Q1 2009 (1,418 KRW) during the financial crisis.

In fact, during the lingering effects of COVID-19 in 2021, Samsung Electronics experienced about 1 trillion KRW in operating profit benefits due to exchange rate increases. Hi Investment & Securities estimated that a 10 KRW rise in the won-dollar exchange rate increases Samsung Electronics’ operating profit by about 313.1 billion KRW. This is a situation where price increases due to memory semiconductor supply shortages and favorable export prices (exchange rates) continue.

With favorable conditions established, only Nvidia’s HBM quality test approval remains. This view is also reflected in Samsung Electronics’ earnings outlook. FnGuide’s aggregated Q3 earnings estimates for Samsung Electronics have recently been upgraded. Three months ago, securities firms expected sales of 79.8574 trillion KRW and operating profit of 11.107 trillion KRW. However, last month, sales and operating profit were raised to 81.5135 trillion KRW and 11.7041 trillion KRW respectively. The recent (as of July 8) consensus is sales of 83.4452 trillion KRW and operating profit of 13.2152 trillion KRW.

Park Yu-ak, a researcher at Kiwoom Securities, analyzed, "The reason Q2 operating profit greatly exceeded expectations is that the improvement in semiconductor profitability due to rising memory selling prices and won-dollar exchange rates was greater than expected," adding, "Q3 operating profit is also expected to significantly exceed market consensus."

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