Silently Climbing to the Top... Will Samsung Electronics Become the World's Most Profitable Company? [Why&Next]

Yonhap News Agency

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Expectations are growing that Samsung Electronics will surpass global giants such as Nvidia, Alphabet (Google), Apple, Amazon, and TSMC to rank first in operating profit next year. If these forecasts prove accurate, it would mark the first time a Korean company becomes the world’s most profitable enterprise, drawing significant attention from the market.

According to the financial investment industry on April 27, global investment bank Morgan Stanley recently raised its operating profit forecast for Samsung Electronics next year from 36.7 trillion won to 63.1 trillion won. The 63.1 trillion won forecast is the highest among all domestic and international securities companies.

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Morgan Stanley expects the advancement of the artificial intelligence (AI) industry to drive a prolonged surge in memory demand, with Samsung Electronics and SK hynix set to be the biggest beneficiaries. Accordingly, Morgan Stanley also raised its operating profit estimate for SK hynix next year from 29.8 trillion won to 40.8 trillion won.

In 2024, Morgan Stanley published a report titled "Winter is coming" for the memory semiconductor market, which triggered a sharp drop in the stock prices of Samsung Electronics and SK hynix and earned the bank the reputation of being the 'grim reaper of memory semiconductors.' Now, just two years later, Morgan Stanley, once the most pessimistic, has become the most optimistic.

After Samsung Electronics and SK hynix reported first-quarter results that exceeded market expectations this year, both domestic and international securities firms-including Morgan Stanley-have been quick to upgrade their earnings outlooks for the two companies.

Among foreign securities firms, Macquarie forecasts Samsung Electronics’ and SK hynix’s operating profits for next year at 47.7 trillion won and 44.7 trillion won, respectively. JP Morgan projects SK hynix’s operating profit next year to be 34.4 trillion won.

Compared to their foreign counterparts, many domestic securities companies remain conservative in their earnings forecasts. According to FnGuide, the consensus among domestic securities firms for Samsung Electronics’ operating profit next year, based on reports published in the past month, stands at 38.9 trillion won, while SK hynix’s consensus is 30.2 trillion won.

Among domestic firms, KB Securities has been the most aggressive in raising its forecasts. KB Securities now projects Samsung Electronics’ operating profit at 32.7 trillion won for this year and 48.8 trillion won for next year, representing upward revisions of 49% and 62%, respectively, from previous estimates.

Kim Dongwon, Head of Research at KB Securities, observed, “Not only did memory semiconductor prices in the first quarter exceed expectations, but the upward trend is expected to strengthen further in the second quarter and into the second half. Accordingly, Samsung Electronics’ operating profit is likely entering a phase of rapid acceleration, starting from the first quarter of this year.”

Kim further predicted that if Samsung Electronics achieves an operating profit of 48.8 trillion won next year as expected, it will become the world’s number one company in terms of operating profit. Nvidia is projected to take second place with an estimated operating profit of 48.5 trillion won. SK hynix is expected to rank third, with KB Securities forecasting its operating profit next year at 35.8 trillion won. The rankings continue with Aramco in fourth (32.3 trillion won), Microsoft in fifth (28.3 trillion won), Alphabet in sixth (28.2 trillion won), Apple in seventh (24.8 trillion won), and Amazon in eighth place (18.3 trillion won).

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With profit forecasts being revised sharply upward, expectations for shareholder return policies are also rising. Samsung Electronics has announced plans to allocate 50% of its free cash flow (FCF) to shareholder returns over the three-year period from 2024 to 2026. FCF refers to the cash remaining after deducting capital expenditures and merger and acquisition costs from the money earned through business operations.

According to the securities industry, Samsung Electronics’ rapid earnings improvement is likely to result in increased cash reserves, raising the possibility of a special year-end dividend. Mirae Asset Securities predicts that, based on an FCF expected to reach 6 trillion won this year, Samsung Electronics’ annual dividend per share could increase to about 8,110 won. Hana Securities projects a figure of 8,135 won.

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Earlier, in February, Macquarie Securities analyzed that Samsung Electronics might carry out a special year-end dividend of around 10 trillion won. Samsung Electronics’ total annual dividend payout typically stands at around 1 trillion won. Paying out 1 trillion won results in an annual dividend of about 1,500-1,600 won per share, but if Macquarie’s projection holds, the special dividend alone could exceed 15,000 won per share. Should Samsung Electronics’ profit next year exceed 60 trillion won as some securities firms anticipate, the dividend could increase even further.

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