Samsung Stock Price Hike After Strong Q3
Samsung Electronics have posted their Q3 2018 results, LON: BC94 posted a record operating profit of 17.57 trillion won. This converts into a massive $15.5 billion USD. The operating profit was up by around 21% year-over-year for Samsung. These profits caused the Samsung stock price to hike post announcement. The company’s semiconductor business has been performing consistently the last few years, with 2018 as no exception. The underperformance in the company’s mobile business has been offset with great gains in the semiconductor side of things. Whilst record profits are a great indication of the company’s success, there are signs of growth decline for the company.
The memory components that Samsung develops attribute to around three-quarters of the company’s profits, recently the profits for that side of Samsung’s business is slowing. With the potential for profits to lower, the Samsung stock price may decline slowly if investors see a significant dip in memory component growth.
Samsung Stock Price Analysis
Samsung’s semiconductor revenue increased by 24% year-over-year to an impressive 24.77 trillion won ($22 billion USD). Operating margins grew by around 500 bps to 55%. The semiconductor growth was attributed to increasing demand for DRAM chips. The DRAM chip success offsets the underperformance in NAND memory chips. Samsung’s NAND memory chips have not been so successful as the market is being oversupplied with the chips.
DRAM semiconductor chip prices have experienced growth in nine quarters consistently. Even in a time of cloud computing, Samsung’s DRAM chips continue to remain popular. For investors, this is great news as the Samsung stock price will benefit from these chips.
However, the success of the DRAM chips is not set in stone, as market research from Trendforce is signaling that DRAM prices could drop by 5% in Q4. The drop in price is said to be because of limited demand growth. This uncertainty could mean that the Samsung stock price may be put under question at the Q4 earnings call.
The Vice President said this in a conference call “The DRAM market could slow in the coming quarters. Demand could strengthen from the second quarter of next year to power new CPU platforms and high value-added memory chips,”.
In a bid to offset the losses from the NAND memory chip, Samsung is trying to become more cost competitive by increasing yields. Samsung is also trying to increase sales of its other products, including high-density server and mobile products.
To finalize, Samsung said that it will also be cutting back on capital spending, expecting to drop by 27% to 31.8 trillion won ($28 billion USD) in 2018.
In terms of dividend, Samsung announced that it was committed to paying over 9.6 trillion won in dividend ($8.5 billion) for each year from 2018 to 2020 (fiscal).
Samsung Stock Price Prediction
Q4, Samsung is predicting earnings across the company to fall as the Holiday season has lower semiconductor demand.
Memory chip demand is set to decline, causing earnings forecast to also fall. Demand for OLED panels is expected to remain high, said Samsung.
Samsung stock price target: 64,270 won
Our analyst gives Samsung stock a “BUY” rating.