According to industry sources on the 27th, SK hynix and Samsung Electronics will release third-quarter results in succession on the 28th and 29th. Both companies are expected to post record results, but analysts say their shares have entered a historically undervalued zone. Worries about a slowdown in the memory chip cycle are weighing on investor sentiment, and some say a new shareholder return policy is needed for a rebound.
Kim Dong-won, head of research at KB Securities, said in a recent report, “The P/E ratios of Samsung Electronics and SK hynix have fallen to around 3x, creating an extreme gap between earnings and share prices and putting them in an undervaluation phase comparable to the past financial crisis.” Ryu Hyeong-geun, a researcher at Daishin Securities, also said, “Even assuming a scenario in which (DRAM) prices fall 50%, current share prices are excessively undervalued.”
Samsung Electronics disclosed preliminary operating profit of 107.4 trillion won earlier this month. Brokerages expect SK hynix's operating profit at around 77 trillion won. If forecasts hold, the two companies' combined operating profit over three months would be about 184 trillion won, a scale with few precedents. Samsung Electronics became the first among global Big Tech (large IT companies) to surpass 100 trillion won in quarterly operating profit. SK hynix's operating margin is expected at 78%. That means that for every 1 million won of sales, it keeps 780,000 won as profit.
Yet share prices have failed to gain strength, contrary to earnings. Based on closing prices on the 26th, Samsung Electronics and SK hynix shares are down 36.2% and 51.9%, respectively, from the end of June, when the KOSPI soared to a peak of around 9,100. Samsung Electronics, which touched around 370,000 won in June, closed at 213,500 won on the 26th. SK hynix, which reached around 2.98 million won in the same month, also ended trading at 1.29 million won that day.
Given forecast net profit for next year of 454 trillion won for Samsung Electronics and 332 trillion won for SK hynix, the two companies' P/E (price-to-earnings) ratios are only around 3x. Brokerages judge that, as future earning power is not properly reflected in share prices, the stocks have entered historically undervalued territory.
However, some argue that for share prices to revive despite undervaluation and strong earnings, concrete measures to raise shareholder value must follow. Samsung Electronics and SK hynix plan to announce shareholder return policies along with this round of results.