20170906-三星证券-US_stock_market_at_a_peak___18页_1mb

Samsung Strategy Weekly Summary

Core Content

This document provides an analysis of the current state of the US and Korean stock markets, focusing on valuation metrics, sector performance, and geopolitical factors. It also includes specific investment recommendations for selected stocks in the Samsung Model Portfolio.

Key Points

US Stock Market at a Peak?

• CAPE Ratio: The S&P 500's cyclically adjusted price earnings ratio (CAPE) is at a post-1999 high, raising concerns about a potential market correction.
• Nobel Laureate Shiller's View: He warns of a "quiet before the storm" and suggests the market could be overvalued.
• Technical Indicators: Jason Goepfert of Sundial Capital Research notes 74 Hindenburg Omen signals, second only to the 78 in 2007, but the authors argue it's too early to conclude the market is peaking.
• Market Valuation Analysis:
  • The US market's CAPE is in better shape than in 1999, with improved quality.
  • Valuations are not at historically demanding levels when compared to expected returns of other assets.
  • The ROE gap and earnings yield gap remain strong, indicating the market has not yet entered overbought territory.
• Six Conditions for Valuation Peak:
  • The first four conditions (Fed rate hikes, ISM peak, output gap closure, profit margin peak) have been met.
  • The last two (inflation expectations and yield curve inversion) have not, suggesting the market is not yet at a peak.
• Economic Surprise Index: Citigroup's index has rebounded since end-June, indicating improving corporate earnings momentum.

Korean Market and Sector Views

• Kospi and Kosdaq Performance:
  • Kospi: 1W -0.9%, 1M -2.7%, 3M 0.6%, YTD 16.4%.
  • Kosdaq: 1W 1.8%, 1M 1.4%, 3M 1.3%, YTD 4.8%.
• Market Valuation (12m Fwd):
  • Kospi: P/E 9.2, P/B 1.0, ROE 10.7.
  • Kosdaq: P/E 14.6, P/B 2.1, ROE 14.3.
• Sector Preferences:
  • Preferred sectors: Steel, nonferrous metal, banking, IT hardware, and semiconductors due to strong 2H earnings outlooks.
  • Value traps: Utilities and display sectors have underperformed.

Investment Recommendations

Best of Samsung (Aug 29 – Sep 4)

• Banking: OVERWEIGHT, with potential for further credit cost reductions. Focus on KB Financial Group, Shinhan Financial Group, and Hana Financial Group.
• Hyundai Mipo Dockyard (010620): BUY, with strong new orders and potential earnings upside. Expected to become a net-cash position by end-2017.
• Household Goods: OVERWEIGHT, with continued competitiveness in exports. Top picks: LG Household & Health Care and Able C&C.
• Hyundai Home Shopping (057050): BUY, with strong earnings momentum. Target price remains KRW175,000.

September Samsung Model Portfolio

Sector	Ticker	Company	Current Price (KRW)	Target Price (KRW)	Market Cap (KRWt)	P/E	P/B	EV/EBITDA	EPS Growth	ROE	Dividend Yield
Energy	A096770	SK Innovation	188,500	n/a	17.4	11.3	5.5	2.0	8.7	2.0	1.0
Materials	A011170	Lotte Chemical	403,000	500,000	13.8	6.2	4.4	20.5	21.3	1.0	2.0
Materials	A051910	LG Chem	373,000	420,000	26.3	14.9	6.8	44.8	13.3	1.5	2.0
Materials	A005490	Posco	347,000	415,000	30.3	11.3	7.0	6.2	96.5	2.1	1.0
Materials	A010130	Korea Zinc	510,000	590,000	9.6	13.4	7.0	20.9	12.4	2.0	2.0
Industrials	A010120	LS Industrial Systems	57,800	71,000	1.7	14.7	7.3	46.4	10.6	2.1	0.0
Industrials	A079550	LIG Nex1	82,500	90,000	1.8	18.2	12.6	29.3	14.9	1.1	0.0
Industrials	A010620	Hyundai Mipo Dockyard	99,200	134,000	2.0	10.2	4.6	88.4	8.3	0.0	2.0
Industrials	A089590	Jeju Air	37,700	50,000	1.0	9.8	2.8	32.2	6.3	1.3	0.0
Industrials	A028670	Pan Ocean	6,290	7,200	3.4	21.1	11.1	61.8	6.3	0.0	0.0
Consumer Discretionary	A018880	Hanon Systems	11,850	13,000	6.3	20.6	3.2	9.8	4.9	0.6	0.0
Consumer Discretionary	A064960	S&T Motiv	51,000	65,000	0.7	9.0	1.0	146.2	11.6	2.4	0.0
Consumer Discretionary	A161390	Hankook Tire	58,700	75,000	7.3	8.9	1.1	4.8	(6.0)	0.7	0.0
Consumer Discretionary	A071840	Lotte Himart	68,900	90,000	1.6	10.7	0.8	25.7	7.8	0.7	0.0
Consumer Discretionary	A034230	Paradise	14,700	17,500	1.3	n/a	1.3	143.0	Turned neg	2.0	0.0
Consumer Staples	A033780	KT&G	112,500	140,000	15.4	14.7	1.9	(14.4)	14.3	3.4	0.0
Consumer Staples	A051900	LG H & H	953,000	1,210,000	14.9	24.7	5.2	13.9	22.8	0.8	0.0
Health Care	A243070	Huons	77,000	71,000	0.5	17.2	3.9	12.1	79.4	0.0	0.0
Health Care	A145720	Dentium	58,700	68,000	0.6	21.4	2.8	15.2	53.7	0.2	0.0
Financials	A105560	KB Financial Group	54,900	71,000	23.0	6.6	0.7	0.0	0.0	0.0	0.0
Financials	A028670	KB Financial Group	54,900	71,000	23.0	6.6	0.7	0.0	0.0	0.0	0.0
Financials	A079550	LIG Nex1	82,500	90,000	1.8	18.2	2.6	146.2	11.6	1.1	0.0
Financials	A010620	Hyundai Mipo Dockyard	99,200	134,000	2.0	10.2	4.6	88.4	8.3	0.0	2.0
Financials	A089590	Jeju Air	37,700	50,000	1.0	9.8	2.8	32.2	6.3	1.3	0.0

Key Information

• The US stock market's CAPE is at a post-1999 high, but the authors argue it is premature to say the market is peaking due to better valuation quality and positive economic indicators.
• The Korean market remains bullish, with the Kospi Compass indicating continued growth potential despite geopolitical risks.
• Sector performance is influenced by earnings outlooks, with steel, nonferrous metal, banking, IT hardware, and semiconductors as preferred sectors.
• Investment recommendations focus on companies with strong fundamentals and growth potential, such as Hyundai Mipo Dockyard and Hyundai Home Shopping.