SEOUL, KOREA - Recent concerns excessive, maintain TP of W2,000,000 Shares of Samsung Electronics pulled back 6.2% to W1,427,000 on Jun 2 over concerns about the company’s position and the overall smartphone market. As such, share momentum may be weak over the near term. But as Samsung’s dominance in the smartphone market firms and its presence in the components business (semiconductors, OLED) continues to grow, we maintain BUY with a TP of W2,000,000. Of note, shares currently trade at 6.5x 2013 PE and 1.6x PB, or 5.6x 2014 PE and 1.3x PB. In 2H13, we believe Samsung will fade the smartphone concerns through solid earnings. And, shares should pick up given the cheap valuations.
Concerns over competitiveness and smartphone market in 2H13 Concerns are growing that improvements in the Galaxy S4 have been only marginal compared to the S3, and that this will weigh on 2H13 sales. Furthermore, worries are mounting that smartphone growth will slow and ASP will erode as smartphones become increasingly commoditized. We believe the narrowing gap with major peers, such as LGE, HTC and Sony, and competition with Apple’s midrange model are risk factors going forward.
Strong Galaxy S4 sales to continue, followed by Galaxy Note 3 and popular mid-range model We believe Galaxy S4 sales will meet our current estimates, as 12mn units sell-in in May and 10mn units sell-in in Jun would fulfill our 22mn unit outlook for 2Q13. Overall, we expect 25mn units per quarter, at an average 8mn units per month. In addition, the Galaxy Note 3 is scheduled for release in 3Q13, which should also bolster earnings. Furthermore, the recently released Galaxy S4 Mini, a mid-range model, is gaining substantial popularity.
True giant: Nokia’s dominance and Apple’s innovation Samsung boasts both Nokia’s dominance in the feature phone market and Apple’s innovation that fueled the growth of the smartphone market. Samsung is fulfilling both consumer and telcos’ needs with a full line-up of handsets and smartphones. Furthermore, the company has secured cost competitiveness via economies of scale, superior brand value and marketing power. As hardware innovation has become increasingly important, Samsung has been the biggest beneficiary, backed by its technological strengths in semiconductors, including AP, memory and displays, such as OLEDs. Going forward, Samsung should lead the change in form factor backed by next-generation flexible OLEDs.
*Source:Korea Investment & Securities Co.
