20160324-三星证券-Perspectives_Weekly_19页_1mb

Samsung Market Strategy Summary

Core Content

This document outlines the market strategy for the Korean and global stock markets as of March 24, 2016, with a focus on earnings expectations, sector fundamentals, valuations, and fund flows.

Main Points

• 1Q Earnings Expectations:

  • Korean corporate earnings for the first quarter are expected to be weak due to declining exports and downward pressure on consensus estimates.
  • The correlation between Korea's exports and MSCI Korea's forward EPS has been around 89% since 2000.
  • Exports fell by 15.6% year-over-year and 6.7% on a won-denominated basis in January-February 2016, with weakness in major sectors like shipbuilding, petroleum products, and semiconductors.
  • The forward EPS forecast for MSCI Korea dropped by 5.62% over the past three months and by an average of 3.19% over the past five years.
  • Weak 1Q earnings are likely to hinder a Kospi rally, but the market may not be significantly impacted due to improving investor sentiment and anticipation of earnings improvements in the second half of the year.

• Kospi Rally Outlook:

  • The rally is expected to stall due to weak 1Q earnings.
  • Recommended stocks are those with higher-than-average ROE and undervalued P/B ratios, or stable earnings momentum relative to the market.
  • Top picks include Samsung SDI, SK Materials, Woongjin Thinkbig, Hyundai Development Co, Orion, Hana Tour Service, Cuckoo Electronics, Com2us, and CJ O Shopping (excluding the financial sector).

• Korean Stock Market Valuations:

  • The Kospi's forward P/E ratio has risen to 11x, a post-2009 high.
  • Sectors like energy, software, insurance, shipbuilding, construction, banking, autos, and parts show solid earnings momentum and undemanding valuations.
  • The chemicals, utilities, and consumer staples sectors, although showing solid earnings momentum, are overvalued compared to the market average.

• Global Market Outlook:

  • Earnings momentum in the Eurozone, Germany, France, Japan, and the US is stronger than the global benchmark MSCI All Country World Index.
  • The US is slightly overvalued, while the Eurozone and Japan are undervalued.
  • Weak momentum in energy and materials, but strong in utilities, consumer staples, consumer discretionary, healthcare, and industrial goods.
  • The consumer staples sector has the most demanding valuation, while the utilities sector is the most undervalued.

Key Information

Sector Fundamentals (MSCI Korea)

• Energy: Strong momentum with forward P/E of 9.8 and forward P/B of 0.9.
• Materials: Strong momentum with forward P/E of 11.4 and forward P/B of 1.2.
• Industrials: Strong momentum in shipbuilding, construction, and transportation.
• Consumer: Strong momentum in autos and auto parts.
• Discretionary: Strong momentum in retail and consumer discretionary.
• Consumer Staples: Strong momentum but overvalued.
• Healthcare: Strong momentum with forward P/E of 39.6 and forward P/B of 4.9.
• Financials: Mixed performance with banks and insurance showing strong momentum, but securities showing weakness.
• IT: Strong momentum in software and telecom services.

Sector Valuations

• MSCI Korea: Forward P/E and P/B are relatively high, with the consumer staples sector being the most overvalued.
• Kospi: Forward P/E and P/B are also high, indicating an overvalued market.
• Kosdaq: Forward P/E and P/B are lower, suggesting more attractive valuations for smaller companies.

Fund Flows

• Global Fund Flows:

  • GEM and Asia ex Japan had net outflows, while North America had inflows.
  • Total global fund flows were USD 4,306 million, with a 0.1% share of AUM.
  • EMs had a net outflow of USD 5,371 million, while DMs had a net inflow of USD 2,935 million.

• Domestic Fund Flows:

  • Domestic investors had net outflows, while foreign investors had net inflows.
  • Equity-type and bond-type funds had net outflows, while MMF had a net inflow.
  • Domestic institutions had net outflows, with domestic individuals showing the most significant outflow.

Summary and Top Picks

Top Picks (Excluding Financial Sector)

Key Recommendations

• Focus on companies with improving earnings and attractive valuations.
• Consider stocks with higher-than-average ROE and undervalued P/B ratios.
• Look for stable earnings momentum relative to the market.

Market Valuations

• MSCI Korea: Forward P/E and P/B are high, with the consumer staples sector being the most overvalued.
• Kospi: Forward P/E has risen to 11x, a post-2009 high.
• Kosdaq: Lower valuations, suggesting more attractive opportunities for smaller companies.

Fund Flows

• Global: Net inflows in North America, net outflows in GEM, Asia ex Japan, and EMs.
• Domestic: Net outflows from domestic investors, with the most significant outflow from domestic individuals.

This document highlights the challenges in the Korean market due to weak first-quarter earnings and provides a strategic outlook for investors to focus on specific sectors and stocks that may offer better value and growth potential.