"Now Too Cheap"... Samsung Electronics and SK hynix Down 40%, Securities Firms Highlight Key Reversal Points [Weekend Money]

Temasek and Abu Dhabi Investment Authority: Attracting Global Long-term Investors

Securities analysts are forecasting a significant re-evaluation for share prices of Samsung Electronics and SK hynix, which have fallen more than 40% from their peaks as the earnings outlook for both companies brightens considerably.

Over 40% Drop in Share Price... But a PER of Just 3

Recently, Kim Dongwon, Head of Research at KB Securities, stated, "Share prices of Samsung Electronics and SK hynix have plunged more than 40% from their peak due to excessive unwinding of margin-leveraged positions, and their price-to-earnings ratio (PER) based on 2027 projected earnings has fallen to just 3." He pointed out, "This means there is significant potential for a valuation re-rating in the future."

The PER is an indicator that shows how expensive a stock is relative to the company's earnings. It is calculated by dividing market capitalization by expected net profit. If the PER is 10, it means it would take 10 years of earnings at current levels to match the market capitalization. All else equal, a lower PER indicates a stock is cheaper relative to its earnings.

According to KB Securities, the projected PER for next year is only 3.7 for Samsung Electronics and 3.2 for SK hynix. This is due to a sharp decline in share prices recently, while earnings expected in the future are projected to surge.

KB Securities estimates that the combined operating profit of the two companies will rise from 91 trillion won in 2025 to 641 trillion won this year, and to 964 trillion won next year. Kim emphasized, "The earnings improvement outlook for next year is not being reflected at all in the share price." He continued, "Operating profit for next year is estimated at 575 trillion won for Samsung Electronics and 389 trillion won for SK hynix. Compared to 2025, that reflects a 13.2-fold increase for Samsung Electronics and an 8.2-fold increase for SK hynix, all within just two years."

Over 60% of Memory Supply Already Secured... The Source of Earnings Confidence

The core reason for the optimistic earnings outlook is expanded investments in artificial intelligence (AI) by global big tech companies and long-term supply contracts. As hyperscalers—major cloud and platform companies—expand their investments in AI data centers, memory demand is rising and both Samsung Electronics and SK hynix are securing long-term supply volumes.

View of SK hynix headquarters in Icheon, Gyeonggi Province Photo by Yonhap News

Kim explained, "With the formal start of five-year long-term supply contracts focused on hyperscalers, over 60% of total memory production volume is already secured, and memory prices are also expected to rise at the same time."

Record-breaking earnings are also anticipated to continue into the third quarter of this year. Kim remarked, "Samsung Electronics is projected to post operating profit of 112 trillion won for the third quarter, an 817% year-on-year surge, marking four consecutive quarters of record results since the fourth quarter of 2025. SK hynix, for its part, is projected to see third-quarter operating profit up 579% year-on-year to 77 trillion won."

Shareholder Returns Also a ‘Re-Rating Card’

Another factor raising hopes for a re-rating is enhanced shareholder return. Returning profits to shareholders through dividends, share buybacks, and cancellations can make a stock more attractive even with the same level of earnings. Kim forecast, "New shareholder return policies soon to be announced by Samsung Electronics and SK hynix, modeled after TSMC’s example, are likely to drive both a valuation re-rating and share price increases simultaneously."

Samsung Electronics Suwon Headquarters in Yeongtong-gu, Suwon-si, Gyeonggi-do. Photo by Yonhap News

Regarding Samsung Electronics in particular, he said, "Over the next three years, shareholder returns of at least 600 trillion won and a dividend yield of over 7% are expected." He noted, "This will act as a powerful catalyst for the long-term influx of capital from major overseas sovereign wealth funds and global megafunds such as Temasek and the Abu Dhabi Investment Authority (ADIA)."

He added, "As the medium-to-long-term supply-demand fundamentals are further strengthened and the valuation re-rating process gains momentum, further upside for share prices is anticipated. Samsung Electronics and SK hynix remain our top picks."

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