Samsung Electronics: Strong Earnings Set to Continue
Samsung Electronics (005930.KR) continued its impressive earnings growth streak in the June quarter, with the company unveiling a 42% quarter-on-quarter jump in its operating profit to an all-time high.
The Korean electronics giant has also displaced Intel to become the world’s largest chip maker, reports The Wall Street Journal.
Samsung’s leadership in chips bodes well for the company’s bottom line as strong memory chip prices have been the biggest driver of its strong performance this year. Daiwa analyst SK Kim expects Samsung to continue to deliver strong earnings in the second half of the year.
Semiconductor will likely drive strong earnings in 2H17. Management guided for a positive outlook for memory. Despite the increased supply for DRAM/3D-NAND, management expects high-density memory-based new smartphone launches and server demand for datacentre to drive the tight supply situation in 2H17. While it plans to increase DRAM capacity as technology migration is not enough to increase output, management emphasised that it would focus on profitability rather than market-share gain. It also guided on its technology roadmap (4nm in 2020) and strategy of expanding its customer base from mobile to computing/consumer/ automotive. We believe the semiconductor business will drive strong earnings in 2H17-2018. Management had a conservative view on the mobile and display business on higher marketing expenses for Note8, slow sales for GS8, and price competition/ramp-up costs for the new OLED line.
Samsung is also likely to unveil a new shareholder return plan in the second half of the year.
After KRW5tn of phases 1 and 2 of its share buyback/cancellation program, SEC will begin phase 3 for 670k common shares and 168k preferred shares from 28 July. It announced a quarterly dividend of KRW7k for common/preferred shares, and guided that it will announce a new shareholder return policy for 2018-20 in 2H17.
Kim has a buy rating on Samsung with a KRW3,200,000 a share target price, which implies 33% upside. Samsung shares are up 33% this year and trade at eight times forward earnings, which is in line with its five year average. The stock pays a 1.2% dividend yield.
Post a Comment