20161215-三星证券-Samsung_Tech_Weekly_11页_373kb

Sector Update Summary

Core Content

This document provides an analysis of the performance and future outlook for key players in the semiconductor and display sectors, including Samsung Electronics (SEC), SK Hynix, and LG Display, with a focus on their financial forecasts, market dynamics, and strategic moves.

Key Companies and Analysts

• Samsung Electronics:
  • Stock code: 005930 KS
  • Current price: KRW1,777,000
  • Target price: KRW2,300,000 (up 29.4%)
  • Analyst: MS Hwang (Semiconductors, handsets)
• SK Hynix:
  • Stock code: 000660 KS
  • Current price: KRW45,850
  • Target price: KRW60,000 (up 30.9%)
  • Analyst: Jongwook Lee (Electronics, Display)
• LG Display:
  • Stock code: 034220 KS
  • Current price: KRW30,300
  • Target price: KRW37,000 (up 22.1%)
  • Analyst: Jongwook Lee (Electronics, Display)

Main Points and Views

1. Memory Price Trends and Forecasts

• Semiconductor Supply Shortages: The memory boom has been prolonged due to supply shortages, leading to upward revisions in forecasts for both Samsung Electronics and SK Hynix.
• DRAM Price Hikes:
  • Samsung's 4Q16 forecast was revised from low-single digit to mid-single digit.
  • SK Hynix's 4Q16 DRAM price is expected to rise by 8% q-q, revised from 3%.
  • 1Q17 forecasts for both companies show upward revisions in memory prices.
• NAND Price Trends:
  • NAND prices are expected to rise for both companies in 4Q16, but will decline in 1Q17.
• Profitability and Demand:
  • Demand for DRAM remains strong due to smartphone and PC growth.
  • DRAM inventories at major PC makers cover about four weeks, while in China, they cover fewer weeks.
  • Samsung's focus on profitability and political uncertainties have impacted supply, but improved margins may lead to increased production.

2. Display Sector Outlook

• Panel Supply Constraints: Panel supplies are expected to remain tight into 2017, with manufacturers operating conservatively to avoid overproduction.
• LG Display:
  • Reiterated as a BUY with a target price of KRW37,000.
  • Shares are trading at 0.8x 2017 P/B, suggesting undervaluation.
• Sharp and Hon Hai:
  • Sharp is expected to reduce its supply to Samsung, potentially benefiting LG Display.
  • Hon Hai is investing in TV panel production, which could impact supply dynamics in the long term.
• JDI and JOLED:
  • JDI may take over JOLED, which could improve OLED capabilities but may not significantly impact short-term capacity.

3. Strategic Partnerships and Market Position

• SK Hynix and Seagate Technology:
  • A potential joint venture (JV) is being considered, which could stabilize NAND supply for Seagate and help SK Hynix expand its storage operations.
  • The partnership is expected to be more impactful if SK Hynix starts 72-layer NAND mass production.
• Market Shares:
  • The enterprise SSD market is dominated by Intel (38%) and Samsung (36%).
  • SK Hynix is working to strengthen its controller business through partnerships.

Financial Forecasts

Samsung Electronics

• 4Q16E Operating Profit: KRW8,549 (up 4.3% from previous estimate)
• 1Q17E Operating Profit: KRW9,113 (up 7.7%)
• 2017E Operating Profit: KRW37,187 (up 6.8%)
• Target Price: KRW2,300,000 (up 15% from previous estimate)
• Valuation: Based on 1.48x P/B, a standard deviation of 0.5 from the post-2006 average.

SK Hynix

• 4Q16E Operating Profit: KRW1.33t (up 20% from previous estimate)
• 2017E Operating Profit: KRW6t (up 800b, an all-time high)
• Target Price: KRW60,000 (up 11% from previous estimate)
• Valuation: Based on 1.5x P/B, a standard deviation of 0.5 from the post-2006 average.

Key Assumptions and Trends

• DRAM Bit Growth: Expected to remain flat in 4Q16, but may decline in 1Q17.
• NAND Bit Growth: Expected to increase in 4Q16, but will slow in 1Q17.
• China's 4G Penetration: Averaging 70-80%, with China Mobile increasing its share from 23% in 1H15 to 51% in 1H16.
• Apple's Component Orders: Expected to fall by 25-30% in 1Q17, but may see further declines due to order deferrals.

Summary of Financial Statements

• Sales and Profitability:
  • Samsung's sales are expected to grow from KRW198,914b in 2016E to KRW213,816b in 2017E.
  • Operating profit is forecasted to increase from KRW28,491b in 2016E to KRW37,187b in 2017E.
• Free Cash Flow:
  • Expected to rise from KRW18,239b in 2016E to KRW19,962b in 2017E.
• Balance Sheet:
  • Samsung's current assets are projected to increase from KRW126,484b in 2016E to KRW141,162b in 2017E.
  • Total equity is expected to rise from KRW188,266b in 2016E to KRW212,386b in 2017E.

Conclusion

The report highlights the ongoing memory boom driven by supply constraints and rising demand in both smartphone and PC markets. It forecasts upward revisions in operating profits and target prices for Samsung Electronics and SK Hynix, while LG Display is highlighted as a top display pick due to undervaluation and potential benefits from panel shortages. Strategic moves like the potential SK Hynix and Seagate partnership and Sharp's reduced supply to Samsung are also noted as key factors influencing the sector.