“Samsung Electronics Co., Ltd. needs a re-rating, but...” Why the target price was lowered

[Financial News] Hana Securities said on the 12th that Samsung Electronics Co., Ltd. needs a re-rating of its corporate value, citing stronger competitiveness in high-bandwidth memory (HBM) and expanded shareholder returns. However, it lowered its target price from 480,000 won to 400,000 won.
Kim Rok-ho, an analyst at Hana Securities, explained, “We lowered the multiple applied as multiples for global semiconductor companies declined,” adding, “A downward adjustment in stock market multiples is inevitable in a high-interest-rate environment.”
The memory business is also expected to drive earnings next year. Hana Securities projected Samsung Electronics Co., Ltd.’s revenue next year at about 1,013 trillion won and operating profit at 624 trillion won, up 40% and 61%, respectively, from this year. It estimated that operating profit in the memory division would reach 627 trillion won, exceeding companywide operating profit.
Kim said, “The memory division will drive earnings, supported by healthy DRAM prices and strong year-on-year growth in HBM.” He added, “I believe a sharp increase in HBM4 supply to key customers starting in the second half of this year will make it the biggest contributor to earnings growth next year.”
HBM revenue next year is estimated at 91 trillion won, close to seven times this year’s level. Its share of DRAM revenue is expected to rise to 15%, while its profitability is forecast to be similar to that of conventional DRAM.
He also cited the expansion of long-term supply contracts as a factor that could prompt a re-rating. The analysis is that earnings visibility will improve as the company secures long-term supply contracts covering at least 50% of its total production capacity, primarily with server and data center customers.
Kim said, “The stock market will watch whether the contracts are actually valid when memory prices become volatile,” adding, “If a reduction in earnings volatility is confirmed, a valuation re-rating is entirely possible.”
This year’s shareholder returns are estimated at 110 trillion won, comprising dividends of about 70 trillion won and share buybacks of about 40 trillion won. With the existing three-year shareholder return policy set to end this year, he also drew attention to the new policy to be announced with the earnings release at the end of January next year.
Kim stressed, “We cannot rule out the possibility of further strengthening the existing policy of using 50% of free cash flow to fund shareholder returns,” adding, “As Samsung Electronics Co., Ltd. will remain the most profitable company among semiconductor makers next year, it needs to move out of undervalued territory.” 

[email protected] Joo Won-gyu Reporter