Samsung Electronics: Strengthening NAND/OLED Competitive Advantage

The author is an analyst at KB Securities. He can be reached at jeff.kim@kbfg.com. — Ed.

Hold BUY, target price KRW 75,000

We hold BUY and 12m TP of KRW75,000 on SEC. We see 2H22 OP coming in at KRW23.2tn (-18% HoH, -22% YoY) and missing the market consensus by 10% as all splits excl. DP suffers from deteriorating demand. In particular, DS earnings are expected to slump in 2H22 as DRAM/NAND shipments and prices fall due to slowing downstream demand (eg PCs, smartphones, servers); buyers have adopted conservative inventory strategies based on expectations of an economic slowdown in 2023. As a result, we expect chip prices to remain weak until customers end inventory adjustments in 1H23 .

3Q22 forecast: OP at 12.4 tn KRW (-22% year-on-year)

We expect DP to do well as DS crashes. Overall, we expect 3Q22 revenue at 79.6 t KRW (+3% QQ, +8% YOY) and KRW revenue of 12.4 tn (- 12% over one quarter, -22% over one year; 15.5% OPM), which is below the KRW13 consensus. .4tn. DS should see bit growth slow (DRAM -4% QoQ, NAND +3% QoQ) and ASP weaken (DRAM -13% QoQ, NAND -16% QoQ). We expect DP OP growth of 43% QoQ on rising orders for flexible OLED panels (iPhone 14). In terms of OP per division, we expect DS at KRW7.4tn, MX at KRW2.7tn, DP at KRW1.5tn, CE at KRW0.5tn and Harman at KRW0.2tn.

Spotlight on Competitive Advantage in NAND/OLED

Despite fears of a memory chip shutdown cycle and economic slowdown, SEC is expected to post strong margins thanks to its superior cost structures for NAND (25.8% of OP DS; 15.9 % of total OP) and OLED (10.5% of total OP). NAND’s improved cost structure is expected to keep OPM at double-digit levels even as prices decline over 30% in 2H22. OLED should maintain the OPM above 20% thanks to its monopoly position and its patents. It should be noted that we see the contribution of the DP OP reaching its highest level (2022E 10.5%) since 2012 (11.1%).

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