20140704-Maybank_KERPL-Houston,_we_have_a_problem__11页_884kb

Samsung Electronics (005930 KS) Summary

Core Information

• Share Price: KRW1,306,000
• Target Price: KRW1,420,000 (+9%)
• Market Cap (USD): $192.5B
• ADTV (USD): $331M
• Country: South Korea
• Sector: Technology
• Recommendation: HOLD (Unchanged)

Key Financial Outlook

• Earnings Forecast:
  • FY14: Down 20% YoY
  • FY15: Down 16% YoY
  • Combined Earnings Dip: 30-40% over two years
  • ROE: Mid-teens in FY14, low-teens in FY15 (from 22% in FY13)
• Capital Management:
  • Excess cash amounts to USD70B by FY15
  • Importance of executing capital management to prevent underperformance

Market Share and Sales Trends

• Smartphones Market Share:
  • FY13: 31.3%
  • FY14: Expected to dip to 27-28%
  • FY12: 30.3%
• Tablets Market Share:
  • FY14: Expected to be 52M units
  • FY15: Expected to be 64M units
• Sales Performance (2Q14):
  • Operating profit: KRW7.36T, down 13% QoQ and 23% YoY
  • Smartphone/Tablet sales: Estimated at 75-76M/8-9M units, flat YoY and -15%/-35% QoQ
  • Street's expectation: KRW8T+

Valuation Metrics

• P/E (x):
  • FY14: 9.5
  • FY15: 11.5
• Core P/E (x):
  • FY14: 9.5
  • FY15: 11.5
• P/BV (x):
  • FY14: 1.3
  • FY15: 1.2
• EV/EBITDA (x):
  • FY14: 2.9
  • FY15: 2.7
• Net Dividend Yield (%):
  • FY14: 1.2
  • FY15: 1.3

Earnings and Revenue Projections

Core EPS Growth

• FY11A: -15.4%
• FY12A: +75.0%
• FY13A: +27.7%
• FY14E: -20.7%
• FY15E: -17.4%

Competitiveness and Product Analysis

• Competition in Smart Devices:
  • Chinese OEMs are gaining market share in EMs with feature-rich phones at attractive prices
  • SEC's low-to-mid-end models have specs that are overwhelming compared to peers
• Product Comparison (Selected Models):
  • Galaxy Ace 3 / 4: 4.0", 1.0GHz, 1.5k battery, USD300
  • Alcatel Alpha: 4.7", 1.2GHz, 2.0k battery, USD300
  • Galaxy Core / Core 2: 4.3"/4.5", 1.2GHz, 1.8k/2.0k battery, USD250
  • Alcatel 2S Mini / Pop C9: 4.5"/5.5", 1.2GHz/1.3GHz, 1.7k/2.5k battery, USD235/220
  • Galaxy Young / Young 2: 3.3"/3.5", 1.0GHz, 1.3k/1.5k battery, USD150
  • Galaxy S4 Mini / S5 Mini: 4.3"/4.5", 1.7GHz/1.4GHz, 1.9k/2.1k battery, USD500
  • Alcatel X+: 5", 2.0GHz, 2.5k battery, USD375

Valuation Methodology (SOTP)

• Target Price (Common Share): KRW1,424,322
• Target Price (Preferred Share): KRW1,139,458 (20% discount to Common shares)

Shareholder and Dividend Information

• Major Shareholders:
  • Samsung Electronics Co., Ltd.: 11.1%
  • National Pension Service of Korea: 7.4%
  • Samsung Life Insurance Co., Ltd.: 7.2%
• Issued Shares (m): 147
• Free Float (%): 71.3
• Net Dividend Yield (%):
  • FY11A: 0.4
  • FY12A: 0.6
  • FY13: 1.1
  • FY14: 1.2
  • FY15: 1.3

Summary of Key Points

• Samsung Electronics faces significant earnings risks due to declining sales and fierce competition in the smartphone and tablet markets.
• Earnings are expected to drop by 20% in FY14 and another 16% in FY15, leading to a 30-40% decline over two years.
• ROE is projected to fall from 22% in FY13 to mid-teens in FY14 and low-teens in FY15.
• The company has USD70B in excess cash by FY15, which is critical for maintaining stock performance.
• Chinese competitors are aggressively capturing market share in emerging markets with cost-effective, high-spec devices.
• SEC's market share in smartphones is expected to decline to 27-28% in FY14 from 31.3% in FY13.
• The target price for Common shares is KRW1,420,000, down from KRW1,500,000.
• Valuation multiples (P/E, P/BV, EV/EBITDA) are expected to remain low, with a focus on P/BV for the SOTP approach.
• The financial outlook highlights the importance of effective capital management and strategic adjustments to maintain profitability.