20171219-三星证券-Takeaways_from_investor_meetings__Most_domestic_investors_too_cautious_15页_1mb

Samsung Market Strategy Summary

Core Content

This document outlines Samsung Securities' market strategy for 2018, focusing on the performance of the Korean stock market (Kospi and Kosdaq), investor sentiment, and sector-specific insights. It also highlights key investment opportunities and the firm's model portfolio.

Key Takeaways from Investor Meetings

• Most Domestic Investors Too Cautious: Institutional investors are overly conservative in their outlook for 2018, likely due to the fear of market bubbles and past crashes.
• Rational Rally in 2017 vs. Irrational Exuberance in 2018: The 2017 rally was rational and fundamentals-driven, but the 2018 rally may be more irrational due to the global macro environment.
• Market Conditions for Irrational Exuberance: The firm believes that the current market conditions are favorable for irrational exuberance, driven by global trade and monetary easing.
• Investor Intuition Misaligned: Investors may have misaligned views due to overgeneralization of market cycles and lack of hedging tools in the past.

Market and Sector Views

Market Overview

• The Kospi Thermometer shows divergent signals between fundamental and technical indicators.
  • Fundamental indicators suggest bullishness based on earnings outlook and valuation.
  • Technical indicators are neutral due to recent pullbacks.
• The medium-term uptrend remains intact despite the current divergence.

Sector VEM Model

• The value, earnings, and momentum (VEM) model is used to assess sector attractiveness.
• Steel and Construction sectors have moved from value trap to overweight, indicating a broadening rally.
• IT Hardware and Semiconductor sectors remain underweight, but may move to other segments if the Kospi rebounds.

Sector Analysis

Energy

• SK Innovation is highlighted with a target price of KRW260,000.
• Valuation: 18.8 (Current), 20.0 (Target)
• P/E: 7.7 (Current), 5.2 (Target)
• EPS Growth: 12.8 (Current), 13.2 (Target)

Materials

• Lotte Chemical, LG Chem, Posco, Korea Zinc are all recommended.
• Valuation and EPS growth are positive across the board.

Industrials

• Hyundai E&C, LS Industrial Systems, SK, Samsung Heavy Industries, Jeju Air are included.
• LS Industrial Systems and SK are highlighted for their potential growth in infrastructure and ESS/EMS.

Consumer Discretionary

• Hyundai Motor, Mando, Hyundai Mobis, Loen Entertainment, Shinsegae are all recommended.
• Hyundai Mobis and Loen Entertainment show strong EPS growth and valuation.

Consumer Staples

• KT&G, Cosmax are included.
• Cosmax shows significant EPS growth and a positive valuation.

Healthcare

• Hanmi Pharmaceutical, Samjin Pharmaceutical are included.
• Hanmi Pharmaceutical has a strong EPS growth and positive valuation.

Financials

• KB Financial Group, Hana Financial Group, Meritz Fire & Marine, Korea Investment Holdings are included.
• KB Financial Group and Hana Financial Group show positive EPS growth and valuation.

IT

• SK Materials, Posco Chemtech, Samsung Electronics, TES, Pearl Abyss are all recommended.
• Samsung Electronics has a high valuation but strong EPS growth.

Telecom

• LG Uplus is highlighted with a target price of KRW18,000.
• Valuation: 6.4 (Current), 8.8 (Target)
• P/E: 9.5 (Current), 10.5 (Target)

Utilities

• Kogas is highlighted with a target price of KRW57,000.
• Valuation: 4.0 (Current), 5.2 (Target)
• P/E: 8.8 (Current), 10.5 (Target)
• EPS Growth: 12.2 (Current), 12.9 (Target)

Best of Samsung (Dec 12-18)

• Telecom Services: LG Uplus is recommended due to potential benefits from US net neutrality repeal.
• Construction: Shares are expected to benefit from regulatory easing.
• Utilities: Kogas is highlighted for its potential in LNG and renewable energy.
• Kakao: Recommended with a target price of KRW170,000, due to its GDR issuance and growth potential in the fourth industrial revolution.

December Samsung Model Portfolio

• The portfolio includes stocks from various sectors with specific price targets and valuations.
• Each stock's performance is evaluated based on current and target prices, valuation metrics, EPS growth, and ROE.

Appendix

• Sector VEM Model: A tool to assess sector attractiveness based on valuation, earnings, and momentum.
• Kospi Thermometer: Combines technical and fundamental indicators to determine market phases.
  • Technical indicators: Group Momentum Oscillator, EMA & ROC trading model.
  • Fundamental indicators: Valuation, earnings, and momentum relative to the Kospi.
• The model uses a one-month investment horizon and is based on strategic analysis, which may differ from equity analysts' opinions.

Key Information

• Market Performance: Kospi and Kosdaq have shown positive returns in the short term, with Kospi leading in YTD performance.
• Valuation Metrics: Kospi's P/E and P/B are at 9.0 and 1.0, while Kosdaq's are at 17.0 and 2.6.
• EPS Forecast: Both Kospi and Kosdaq show positive EPS growth, indicating strong earnings expectations.
• Geopolitical Risk: The North Korea issue is moving from confrontation to dialogue, easing valuation concerns for the Korean market.
• US Policies: Tax cuts and infrastructure investment are expected to benefit the old economy and stimulate risk appetite in the stock market.

Summary

Samsung Securities remains bullish on the market for 2018, despite the overly conservative stance of many domestic institutional investors. The firm believes the current rally is rational and fundamentals-driven, and that the market may experience irrational exuberance in the coming year. The VEM model and Kospi Thermometer are key tools used to assess market and sector performance. The model portfolio highlights stocks across various sectors, with a focus on those likely to benefit from favorable macroeconomic conditions and policy changes. The firm emphasizes the importance of staying ahead of market trends and avoiding overly conservative positions that may lead to missed opportunities.