The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. — Ed.




 

We expect SEC’s 3Q20 OP to reach W10.2tn (+25% q-q). Recently, SEC’s IM division has enjoyed an uptick in sales on increased smartphone sales volume (thanks to Covid-19 subsidies) and accelerating orders for 5G equipment.

3Q20 OP to reach W10.2tn (+25% q-q)

Adhering to a Buy rating on Samsung Electronics (SEC), we raise our TP from W73,000 to W76,000 on a hike to our earnings estimates for 2021 onwards. Currently trading at a 2021F P/E of 8.3x, SEC looks undervalued compared to its global competitors.




SEC’s 3Q20 earnings are forecast to show sales of W63.4tn (+20% q-q), OP of W10.2tn (+25% q-q), and NP (excluding minority interests) of W8.4tn (+52% q-q). By division, OP should divide as: semiconductor W5.2tn (-5% q-q), display W0.4tn (+32% q-q), IM W4.0tn (+106% q-q), and CE W0.9tn (+18% q-q).

To enjoy higher smartphone demand

With demand for its smartphones recovering as of late, SEC’s 3Q20 smartphone shipments should reach about 80mn units (+49% q-q). Likely helped by stronger economies of scale amid shipment growth, we believe that 3Q20 OPM at the IM division will improve to around 13%. Having declined in 1H20 due to Covid-19, smartphone demand appears to be picking up in 2H20 in response to government subsidies. Even without significant marketing expenditure, SEC’s smartphone sales look to be in good shape.

We believe that earnings at the IT giant’s network equipment business are also favorable thanks both to benefits from US sanctions against competitor Huawei and full-fledged investment in 5G base stations. On Sep 7, SEC announced that it has signed a 5G communications equipment supply contract with US client Verizon, with the contract to total US$6.64bn over a five-year period. With the release of the Galaxy Z Fold 2, expectations for foldable smartphones are re-emerging, with related sales estimated at 1mn units. Flexible OLED line utilization is also to improve on major clients’ launches of new smartphone models in 3Q20.

 



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