"Sold During the Plunge, Now What?"... Samsung Electronics at 5.5 Million Won, SK hynix at 4.2 Million Won—Time to Buy, Not Sell? [Weekend Money]
Mirae Asset Securities: "Stock Prices Down on Outlook for Lower NAND Prices"
"However, with a 30% Drop from the Peak... Downside Factors Largely Absorbed"
Target Prices for Samsung Electronics and SK hynix Maintained
"Expanding Positions at the B
Mirae Asset Securities has analyzed that the recent decline in global memory semiconductor stocks is due to a drop in NAND prices. The firm suggested that the correction has sufficiently digested the bearish factors, and now is an opportune time for bottom-fishing.
On July 26, Kim Younggeon, a researcher at Mirae Asset Securities, stated, "There has been a marked decline from the recent highs across the global memory semiconductor industry. While the market has attributed this to factors such as the possibility of second-quarter earnings missing expectations and supply-demand disruptions caused by leveraged products, we identify the outlook for falling NAND prices as the main reason." He added, "We recommend buying at the current levels, as we believe the stock price decline has been sufficiently absorbed through adequate correction."
Recently, semiconductor stocks have seen corrections of around 30 percent since peaking on June 20. Mirae Asset Securities attributed this adjustment primarily to the prospect of falling memory prices. According to market research firm TrendForce on July 16, NAND contract prices are expected to decline starting in the third quarter of next year.
The main reason for the anticipated drop in NAND prices is an easing in supply and demand. On the demand side, there are concerns that the growth rate of bit shipments for enterprise solid-state drives (SSD) will decrease from the third quarter onwards. This reflects the view that a portion of the current strong demand is also due to preemptive inventory building.
On the supply side, new wafer production capacity (CAPA) is expected to be added starting from the second quarter of next year. Samsung Electronics plans to begin operating its Xi'an fab, now fully transitioned to V-NAND (V9), while Kioxia's K2 fab, SK hynix's Dalian fab, and YMTC's new fab are also expected to come online. Mirae Asset Securities projected NAND's supply surplus rate to be 1.1 percent in the third quarter and 12.2 percent in the fourth quarter of next year, compared to a supply shortfall rate of -10.8 percent in the first quarter of this year.
However, Mirae Asset Securities believes that the impact of potential NAND price declines on stock prices has been largely alleviated, given the 30 percent drop from their peaks. Kim noted, "While further supply-demand easing is possible, the current level of new CAPA in the NAND industry next year does not appear sufficient to cause excessive oversupply, particularly as uncertainties around supply excess are not significant."
In contrast, DRAM prices are expected to continue rising through the end of next year. According to TrendForce, contract prices for 16GB DDR4 and DDR5 are forecast to rise by 43 percent and 38 percent, respectively, from this month through December next year.
The firm also emphasized that, when analyzing Alphabet's second-quarter earnings, it is more important to focus on its order backlog rather than capital expenditures (CAPEX). Alphabet's order backlog stood at USD 468 billion in the first quarter, up 92.6 percent from the previous quarter, and continued to increase to USD 514 billion in the second quarter. Kim remarked, "Big Tech companies' CAPEX serves as a vehicle to translate order backlog into revenue, so as long as the order backlog remains strong, continued capital expenditure is inevitable." He added, "Alphabet indicated a meaningful upward adjustment in CAPEX for next year, and we expect Microsoft and Amazon to maintain an upward trend as well."
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Based on this analysis, Mirae Asset Securities maintained its target prices for Samsung Electronics and SK hynix at 5.5 million won and 4.2 million won, respectively, stating that now is a valid window to increase exposure at lower levels. Kim noted, "Samsung Electronics and SK hynix have fallen by approximately 26 percent and 37 percent, respectively, from their recent highs over the past month. As a result, both companies' 12-month forward price-to-book ratios (P/B) and price-to-earnings ratios (P/E) have entered notably low levels relative to their return on equity (ROE), at 1.8 times, 4.4 times, and 2.7 times, 5.1 times, respectively." He further added, "In particular, Samsung Electronics is at a price level expected to yield a dividend return of 7.9 percent for common shares and 11.1 percent for preferred shares (including basic dividends)."
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