Samsung Elec now 21st most valuable stock and may go higher

2020.01.10 14:20:15 | 2020.01.10 14:39:58

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South Korean chipmaker Samsung Electronics Co. has been testing new 52-week highs this week on frenzied foreign appetite for Korean chipmakers on bet for a turnaround in the memory chip segment, putting the stock as the 21st most valuable in global scale.

Samsung Electronics shares on Thursday closed 3.17 percent higher at 58,600 won ($50.42), which raised its total market value to 351.62 trillion won, the largest on Korea’s benchmark Kospi bourse. The rally was driven by foreigners who net purchased 216.2 billion worth on the same day, according to the Korea Exchange.

Offshore investors have been showing voracious appetite for the company’s stock, with net purchases of 529.2 billion won since the beginning of the year.

The recent rally pushed up the value of Samsung Electronics to the world’s 21st from 32nd largest a year ago, outperforming global leading companies like Intel, AT&T, Coca-Cola, Wells Fargo and Chevron.

“Expectations for a chip demand recovery and a rise in capital expenditure add more momentum to the stock price,” said Hwang Min-seong, analyst at Samsung Securities.

Samsung Electronics however has room to grow further as its price to earnings ratio (PER) of 12.6 remains below other global tech names like Apple with 20, Nvidia with 33.2, Texas Instruments with 25.4, AMD with 44.9, Qualcomm with 14.6 and Sony with 15.3.

The low PER indicates the current stock price is low relative to earnings and so there is room for further gains.

The Korean tech giant has been generous with shareholders despite poor business performance over the past few years. It paid out cash dividend of 12.9 trillion won from 2015 to 2017 and now targets to raise the volume to 28.8 trillion won for the 2018-2020 period.

“The stock buyback and retirement as well as the improved earnings outlook all bode well for the stock. The dividend payout ratio is expected at 4 percent this year, adding more investment appeal,” said Lee Hyo-sup, analyst at the Korea Capital Market Institute.

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Samsung Electronics suggested it might have passed the worst in the chip down cycle, with its fourth-quarter numbers showing signs of improvement. In a preliminary regulatory filing on Wednesday, it projected an operating profit of 7.1 trillion won in the October-December period, down 8.7 percent from the previous quarter but beating the market consensus by 8 percent.

Sales were expected to have reached 59 trillion won, off 4.8 percent on quarter and 0.5 percent on year.

For full 2019, the company estimated its operating profit to reach 27.71 trillion won on sales of 229.52 trillion won.

According to estimates compiled by Seoul-based financial data provider FnGuide, Samsung Electronics is estimated to earn an operating profit of 38.54 trillion won this year, recovering 40 percent from last year. Sales are estimated at 255.71 trillion won, up 11.41 percent on year.

The chip division alone is forecast to deliver an operating profit of 20.4 trillion won this year, according to Eugene Investment & Securities.

External conditions have also improved.

The U.S. may want to ease the trade tension with China ahead of 2020 presidential elections, which could lead to a possible rise in global demand and chip exports from Korea.

A fire at a Kioxia flash foundry in Japan on Tuesday also could affect the global output as it is expected to take nearly two weeks to make it normal. With the supply fall, NAND flash prices could go up.

Local securities firms recently have revised up the company’s stock price target one after another – Samsung Securities to 70,000 won from 60,000 won, IBK Securities to 68,000 won from 57,000 won, Kiwoom Securities to 69,000 won from 65,000 won, and eBest Investment & Securities to 67,000 won from 61,000 won.

By Chung Seung-hwan, Chung Seung-hwan, Kim Gyu-sik and Lee Ha-yeon

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