Now Is Not the Time to Sell Samsung Electronics and SK hynix...Securities Firms Say "The Market Greatly Misunderstood"[Weekend Money]

Sunwoo Kim of Meritz Securities Warns on Market Misunderstanding
"Butterfly effect from widespread misperception is shaking stock prices"
Shareholder return initiatives and early execution likely to dispel concerns

Amidst the volatility in semiconductor stocks such as Samsung Electronics and SK hynix, there is an opinion emerging that the market has been excessively misinformed and should instead focus on the intrinsic value of these companies.

Sunwoo Kim, an analyst at Meritz Securities, stated in his recent report, "Semiconductors: Knowing Only One Thing, Not the Other," that "a butterfly effect sparked by widespread misunderstanding is currently shaking up semiconductor stock prices." He added that there is a tendency for people to mistake fragmented information as the whole picture and interpret it in a shortsighted and negative manner, emphasizing the need for an accurate assessment of the current situation.

Kim explained that the rumor suggesting SK hynix has made a 'sacrifice' by lowering prices in its long-term agreements (LTA) with big tech companies is a misunderstanding. It is not a simple price cut; rather, it is a preemptive strategy aimed at monopolizing the “vast new customer territory” of the generative artificial intelligence (AI) and AI data center (AIDC) markets. "SK hynix is focused on creating long-term demand, particularly by forming joint ventures or partnerships related to AIDC, which leads to new demand sources through stronger collaborations," he said. "This is because it enables SK hynix to secure a stable, dominant market share in those areas." In other words, SK hynix has made an investment, not a sacrifice.

He also pointed out that vague fears of a semiconductor supply glut next year are misplaced. Kim noted that the supply shortage is expected to deepen in the second half of this year, with DRAM demand fulfillment falling to about 75-80%. "Next year, the fulfillment rate is expected to drop further to the 60% range, and even if only genuine demand sources are considered, the fulfillment rate will barely surpass 70%. This makes a deepening supply shortage next year virtually certain," he said.

He predicted that these excessive market concerns will be dispelled by upcoming early execution of shareholder returns and partnerships with big tech companies. He forecast that the visibility of Samsung Electronics’ shareholder return, which will complete its three-year shareholder return program this year, has become very high, and that share buybacks and cancellations as well as dividends, and purchase of treasury shares for employee compensation, will act as catalysts for a stock price rebound. For SK hynix, he expects that the company will actively consider special dividends and other shareholder return measures. Kim added, "As SK hynix and SK Group have stated, with the full-scale launch of their AIDC business in the second half of this year, partnerships with U.S. big tech and frontier model firms are likely to become a reality soon." He expects these partnerships to take various forms, including joint ventures, equity investments, and usage commitments.

Kim also pointed out that, based on metrics such as price-to-earnings ratio (P/E), price-to-book ratio (P/B), and return on equity (ROE), Samsung Electronics is extremely undervalued, while SK hynix has undergone excessive correction. He stated, "This is a time when the lesson that the magnitude of fear is proportional to expected returns should be highlighted."

This content was produced with the assistance of AI translation services.