Morningstar | Samsung’s Profit Warning Does not Change our View of Expecting Memory Demand Recovery in 2020
On March 26, Samsung Electronics issued profit warning, which implies that its numbers for the March quarter will be lower than the market’s expectation, owing to the price decline on memories and display panels. Recent market research suggests that both DRAM and NAND price have dropped more than 20% from the previous quarter because of the weak demand and high inventory level, which is above our forecast of assuming a low to midteens percentage decline. We were expecting that Samsung’s operating margin for semiconductors in the March quarter would decline to 36% from 55.6% on the previous year, but it will be even lower than our expectation as a result.While disappointing March quarter numbers will drag down our earnings forecasts in the short run, we do not expect to make material change to our fair value estimate of KRW 55,000, as our view that the diffusion of 5G will drive future memory demand, is intact. Samsung’s share has surged approximately 20% from the recent bottom expecting the recovery of memory demand in late 2019, but we believe it will stagnate for a while as the recovery is not as fast as the market expects. However, the downside on the share price will be limited as: 1) memory price decline will peak out in the March quarter; and 2) its dividend yield of 3% should be attractive for investors and will support the share price.
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