20160222-三星证券-G5_prospects_up_amid_low_expectations_13页_533kb

Sector Update Summary

Analysts and Contact Information

• Harrison Cho
  Analyst
  Email: sharrison.jo@samsung.com
  Phone: 822 2020 7761

• Jongwook Lee
  Analyst
  Email: jwstar.lee@samsung.com
  Phone: 822 2020 7793

• Jaehun Cheong
  Research Associate
  Email: jh.cheong@samsung.com
  Phone: 822 2020 7760

Key Companies and Target Prices

• Samsung Electronics

  • Stock Code: 005930 KS
  • Price: KRW1,190,000
  • Target Price: KRW1,650,000 (+38.7%)

• LG Electronics

  • Stock Code: 066570 KS
  • Price: KRW60,800
  • Target Price: KRW75,000 (+23.4%)

• Samsung Electro-Mechanics

  • Stock Code: 009150 KS
  • Price: KRW59,100
  • Target Price: KRW65,000 (+10.0%)

• LG Innotek

  • Stock Code: 011070 KS
  • Price: KRW85,200
  • Target Price: KRW110,000 (+29.1%)

Core Content and Main Points

1. Low Expectations and Market Response

• Samsung Electronics (SEC) and LG Electronics (LGE) unveiled their latest flagship smartphones at Mobile World Congress: Galaxy S7 and G5.
• The G5 received a more positive response than the S7, due to its dual-lens camera, metal case, and modular design.
• The S7 showed limited changes from the S6, and its camera response was weaker than the G5.
• Low expectations have led to a tamed market response, and surprises are unlikely to significantly boost sales.

2. Shipment Outlook

• SEC's Galaxy S7 shipments are expected to fall by 5% compared to the S6.
• LGE's G5 shipments are expected to be between the G3 (7.5m) and G4 (4.5m), with a positive outlook due to improved hardware and lower anticipation.
• SEC's parts suppliers are likely to see sales boost in 1Q16, but decline in 2Q16 due to early inventory adjustments.
• LGE's parts suppliers may benefit from hardware upgrades such as dual-lens cameras, fingerprint scanners, and metal cases.

3. Investment Strategy

• SEC's parts makers are advised to take a conservative approach due to falling shipments and lack of significant tech changes.
• LGE's parts makers are preferred investments due to positive hardware changes and lower base expectations.
• LG Innotek is highlighted as a key beneficiary of dual-lens camera adoption, and its shares are attractively valued due to slow demand from Apple.

4. Hardware Trends

• SEC has been reluctant to adopt new hardware such as force touch, dual-lens cameras, and fingerprint scanners, due to high material costs and focus on software and ecosystem.
• LGE has made progress in hardware by integrating fingerprint scanners, dual-lens cameras, and metal cases in the G5.
• SEC may adopt dual-lens cameras and force touch in 2H16 or 2017, based on falling component prices, market demand, and positive iPhone 3D touch response.

Key Tables and Charts

Table 1: Flagship Models - Specification Comparison

• SEC Galaxy S6 vs. S7 (expected): No major changes in camera or display.
• LGE G4 vs. G5 (expected): G5 has dual-lens camera, fingerprint scanner, and metal case.
• G5 is expected to improve on G4 performance, but shipments may not match G3 levels.

Table 2: Major Parts Makers - Share-Price Trends

• SEC suppliers: Mixed performance with some growth in 1Q and 3Q, but decline in 6Q.
• LGE suppliers: CrucialTec and IM Tech are highlighted, with positive share price trends.

Table 3: Hardware Changes - Galaxy S Series and LG G Series

• Galaxy S series has seen gradual improvements in camera, display, and battery.
• LG G series has introduced dual-lens camera, fingerprint scanner, and metal case in the G5, with positive impact on parts suppliers.

Compliance Notice

• Samsung Securities is affiliated with Samsung Electronics and Samsung Electro-Mechanics as of Feb 19, 2016.
• Analysts did not own any shares or convertible debt of companies covered in the report.
• Samsung Securities does not guarantee the accuracy or completeness of the report and is not an offer to buy or sell securities.

Target Price Changes (Past Two Years)

• Samsung Electronics: Target price dropped from KRW1,800,000 to KRW1,650,000.
• LG Electronics: Target price increased from KRW65,000 to KRW75,000.
• Samsung Electro-Mechanics: Target price fluctuated, ending at KRW65,000.
• LG Innotek: Target price increased from KRW110,000 to KRW110,000 (stable).

Summary of Key Recommendations

• Avoid SEC's parts makers due to falling shipments and aggressive consensus.
• Consider LGE's parts makers, especially LG Innotek, CrucialTec, and IM Tech, due to hardware upgrades.
• Stay cautious with SEC's supply chain due to shorter product cycles and price cuts.
• Watch for potential hardware changes in SEC's Galaxy Note in 2H16 or Galaxy S in 2017.