In order to alleviate investor concerns, Samsung Electronics issued a document today stating that it still maintains the buy view of the Korean stock exchange index and the target price of 80,000 won.
They think:
(1) Inventories should return to healthy levels in 2Q23, although key customers are focusing on clearing inventories amid low seasonal demand;
(2) Chip price decline should slow down in 2Q23 as prices approach cost levels (Q4 -30% → Q1 -20% → Q2 -10%);
(3) The earnings decline should end by the first quarter earnings release (April). We believe chip supply-demand dynamics will improve as the signs of the end of the down cycle (e.g. inventory drawdown, slowing price declines) start to emerge in 2Q23.
Samsung Electronics (SEC) announced last week that it will borrow 20 trillion won from Samsung Display (annual interest rate of 4.6%; interest income from Samsung Display is 920 billion won; full amount due in 2025) redemption/ early redemption at discretion) to fund operations.
By the end of 2022, the SEC has 115 trillion won in cash reserves (104 trillion won in net cash), which is inevitable considering its DS division is expected to post its first loss in 14 years. In addition, most of the 53 trillion won capital expenditure planned for this year is for Korean operations.
Considering expected DS losses, Samsung Electronics forecasts OP of KRW 13 trillion in 2023 (down 70% YoY) and KRW 0.6 trillion in 2Q23 (KRW 4.3 trillion in Q4, Q1 1.1 trillion won in the quarter).
Samsung said that the indirect production cut will reduce DRAM production by 9%, resulting in a 4% decline in global DRAM supply, which will help restore the supply-demand balance in the second half of 23. That said, Samsung believes that the supply-demand dynamic will start to rebound in 3Q23.
