20171017-三星证券-Still_undervalued,_despite_new_highs_20页_1mb

Samsung Strategy Weekly Summary

Core Content

This document provides a comprehensive market and sector analysis of the Korean stock market (Kospi and Kosdaq) as of October 17, 2017. It evaluates the overall performance, valuation metrics, and earnings momentum across various sectors, offering insights into investment opportunities and market sentiment.

Key Market Performance

• Kospi:

  • Reached an all-time high of 2,473.62 on October 13, 2017.
  • YTD increase of 22.1%, which is slightly lower than Brazil's Bovespa increase of 27.8%.
  • Forward P/E and P/B at 9.4x and 1.02x, respectively, which are lower than the figures during previous peaks in 2007, 2011, and 2015.
  • Valuation remains attractive, with the index's multiples still one standard deviation below 10-year averages.

• Kosdaq:

  • YTD increase of 5.0%.
  • Forward P/E and P/B at 15.0x and 2.2x, respectively.
  • The MSCI Korea index shows a significant discount to MSCI DM and EM indices, with discounts of 43.9% and 25% in terms of P/E.

Market Conditions

• The market remains favorable with:
  • Strong macroeconomic indicators both domestically and internationally.
  • Steady upward revisions in earnings forecasts.
  • Reduced US-North Korea tensions.

Sector Analysis

Preferred Sectors

• Chemicals, Financials, and Semiconductors:

  • All undervalued relative to the Kospi.
  • Stronger earnings momentum compared to the overall market.
  • Chemicals are the most undervalued, with P/E and P/B below 10-year averages.
  • Semiconductors show the highest forward EPS forecast revisions, up 12% over the past three months.

• Banking, Securities, and Insurance:

  • Banking and securities are undervalued compared to the Kospi.
  • Insurance is somewhat expensive but not overvalued historically.
  • All three segments have shown positive EPS momentum, with forward EPS forecasts up by 6.3%, 7.2%, and 8.3%, respectively.

• Healthcare:

  • Positive earnings momentum, but high share-price volatility.
  • Forward EPS forecasts have increased by 6.2% over the past three months.

• Steel:

  • Attractively valued relative to the overall market.
  • Earnings momentum has slowed.
  • Benefited from China's supply-side restructuring, but demand is expected to be tepid from next year.

Underperforming Sectors

• Shipbuilding, Autos, and Auto Parts:

  • No signs of earnings rebounds.
  • Sector rotation indicates these segments are still in the lagging quadrant.

• Consumer Staples, Cosmetics, and Utilities:

  • Face the most difficulty, remaining in the lagging quadrant.
  • These sectors show weak earnings growth and limited forecast revisions.

Valuation and Forecast Trends

• Forward EPS Growth:

  • MSCI Korea forward EPS forecasts have increased by 6.4% over the past three months.
  • This growth is the largest among DMs and EMs globally.
  • The consensus forecasts for forward EPS have been improving since 2015.

• Z-scores:

  • Kospi's P/E and P/B z-scores are the lowest worldwide, indicating undervaluation.
  • The MSCI Korea index shows a significant discount to DM and EM indices, with P/E and P/B z-scores indicating a strong relative value.

Sector Rotation and Momentum

• Relative Strength Index:

  • Chemicals, trading/capital goods, banking, and software sectors are in the overweight territory.
  • IT hardware sector has escaped being underweight due to improved earnings momentum, despite being expensive.

• Sector Momentum:

  • Chemicals are the most promising, with strong earnings momentum and undervaluation.
  • Semiconductors have shown consistent leading momentum, though share-price momentum is slowing.
  • Healthcare and steel are showing mixed signals, with healthcare having positive momentum and steel experiencing a slowdown.

Key Takeaways

• The Kospi index, despite hitting new highs, remains undervalued.
• The MSCI Korea index is significantly discounted compared to DM and EM indices.
• Forward EPS forecasts are improving, showing strong earnings momentum.
• Certain sectors like chemicals, financials, and semiconductors are recommended for investment due to their undervaluation and positive earnings momentum.
• Other sectors such as healthcare and steel show potential but come with challenges like volatility and slowing momentum.
• The market conditions are favorable, with strong macroeconomic indicators and reduced geopolitical tensions.

Appendices

• Sector Valuation & Momentum: A visual representation of the valuation and momentum of various sectors.
• Sector Relative Rotation: A chart showing the momentum of relative strength across sectors, indicating leading, weakening, and lagging segments.

Conclusion

The Korean stock market is currently undervalued despite achieving record highs, with several sectors showing strong potential for investment. The report emphasizes the importance of evaluating both valuation metrics and earnings momentum to identify the most promising opportunities. Investors are advised to focus on chemicals, financials, and semiconductors while remaining cautious about underperforming sectors.