Samsung Electronics target price raised on early chip recovery expectations

[Photo by Yonhap]

Brokerage houses at home and abroad are raising their target prices for Samsung Electronics Co., despite the lower-than-expected first-quarter operating profit.

The adjustments came from growing market expectations that Samsung Electronics’ move to adjust production, which was announced last week, could accelerate a recovery in the semiconductor industry. In addition to Samsung Electronics, shares of other global and local chipmakers have also risen.

According to industry sources from securities firms on Wednesday, global brokerage firms raised target prices of Samsung Electronics after the earnings. Goldman Sachs Group Inc. raised the price to 77,000 ($58.16) from the previous 74,000 won and HSBC Holdings Plc to 88,000 won from 75,000 won. Mizuho Securities Co. nudged up the price to 80,000 won from 77,000 won.

Samsung Electronics’ short-term profit may be weak due to worsened earnings from memory chips, but the production cut will allow inventories to fall in the second quarter, Goldman Sachs said in its latest report, adding that the company’s earnings could hit bottom this quarter.

HSBC said it expects the production cut to help quicken a recovery in memory chip prices. With an expected fall in inventories, the prices of DRAMs and NAND flash memories will bounce back in the third quarter, it said.

Mizuho Securities said that Samsung Electronics could take this down time to retain its market leadership unlike its rivals that lack investment options in facility infrastructure and plant relocation. It said that the Korean chipmaker will benefit the most from the next upcycle.

Korean brokerage houses also adjusted upward the target prices for Samsung Electronics. IBK Securities Co. raised the price to 90,000 won. Securities firms that revised the target prices for the chipmaker include BNK Securities at 87,000 won, HI Investment & Securities Co. at 83,400 won, Kiwoom Securities Co. at 80,000 won, Shinyoung Securities Co. at 79,000 won and Eugene Investment & Securities Co. at 78,000 won.

Samsung Electronics announced in a filing Friday that its first-quarter operating profit fell 96 percent from a year ago. Analysts expect the semiconductor business could post a loss in the second quarter that would be similar to the previous three-month period. However, the production cut could accelerate recovery within the memory chip industry to the third quarter.

Expectations are growing that Samsung Electronics shares will rise. Samsung Electronics and SK hynix Inc. rose 10 percent and 7.12 percent each over the last month.

“The production cut was a prudent decision which would be a signal that an additional decline in memory chip prices is less likely,” said Ko Young-min, an analyst at Shinhan Securities Co. “This could maximize potential profits by preventing an excess of inventories.”