Samsung: Preliminary Numbers In Line, Memory Production Cut Will Be Positive for Pricing

Although Samsung Electronics’ preliminary March quarter numbers were slightly below our forecasts and the PitchBook consensus, there were no major surprises, given Micron Technology’s February quarter results reported last month, which showed an operating loss due to the severe memory price erosion and inventory write-downs. We do not expect Samsung’s guidance itself to have a significant impact on memory stocks, but based on our latest memory price forecasts, we lower our 2023 and 2024 operating income forecasts for Samsung to KRW 11.5 trillion and KRW 33 trillion—from KRW 16.5 trillion and KRW 40 trillion; and for SK Hynix 000660, we revise them to KRW 9.45 trillion loss and KRW 3.2 trillion profit—from KRW 6.4 trillion loss and KRW 4.25 trillion profit, respectively. While we expect suppliers to suffer from oversupply throughout 2023 due to high inventory levels, we think a more severe undersupply will occur in 2024 when demand recovers due to limited capacity expansion in 2023. As a result, our earnings forecasts from 2025 to 2027 remain largely unchanged. Therefore, we maintain our fair value estimates of KRW 120,000 for SK Hynix and KRW 72,000 for Samsung Electronics (adjusted to USD 1,380 per GDR due to currency movements).

Meanwhile, we are encouraged by Samsung’s announcement that it will cut memory chip production to a meaningful level. While other memory suppliers have been urged to cut their 2023 capital spending and capacity utilization to protect their cash and profitability amid the worst oversupply in 13 years, Samsung has maintained its 2023 capital expenditure and full utilization guidance, which had us concerned that the ongoing oversupply could last longer than expected. Therefore, the company’s utilization cut announcement should alleviate the market’s concerns and reinforce our view that the memory supply/demand balance will tighten toward the end of 2023.