Morningstar | Weaker December-Quarter Results Do Not Change Our Confidence in Samsung's Long-Term Memory Growth
While we cut Samsung Electronics’ earnings forecast for fiscal 2019, we retain our fair value estimate of KRW 55,000, as we believe that the long-term growth scenario for its semiconductor segment is intact. We had been expecting the slowdown of the memory market in first-half 2019, but it was earlier and steeper than anticipated, which is why Samsung’s December quarter earnings numbers were below our expectation. As we view that the weaker smartphone demand and the economic slowdown will continue, memory shipment in 2019 may be lower than our original forecast. Meanwhile, we believe that diffusion of 5G will drive the future memory demand, and recent decline on memory pricing will induce contents growth per unit in the longer run, and thus, we do not make material changes to our long-term earnings forecasts as well as our fair value estimate. We expect that Samsung’s operating margin will bottom out in the June quarter, and accordingly, Samsung’s share has recovered approximately 20% since January. However, we believe that Samsung’s long-term growth is not fully priced in.Our operating income forecast for fiscal 2019 is lowered from KRW 53.5 trillion to KRW 42 trillion, as we revised our memory shipment assumption from 18% growth to 3% growth for DRAM, and from 36% growth to 28% growth for NAND, which lowered our operating margin forecast for semiconductors from 45% to 41%. However, we slightly raised our operating income forecast for fiscal 2023 from KRW 62 trillion to KRW 64 trillion, as we expect larger server demand for DRAM, driven by the diffusion of 5G. Overall, disappointing December quarter results does not change our long-term view, and thus we recommend being the holder of the share.
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