The author is an analyst at KB Securities. He can be reached at [email protected] — Ed.
Maintain BUY, TP of KRW80,000
We maintain BUY and our target price of 80,000 KRW for SEC. Industry trends toward AI (including ChatGPT) are clearly positive for future memory demand, while production cuts at SEC are expected to improve memory supply and demand dynamics going forward. 3T23. Moreover, the sharp rise in the 12-month P/E can be seen as a sign of a stock price rebound. There have only been five times in the past 20 years when the SEC has experienced a large P/E increase of 12 million, and all of those instances have coincided with the early stages of a price rally. of action.
Memory prices will be close to the bottom in 2Q23
Memory prices were down 50% year-over-year in 1Q23, with DRAM prices across all global memory manufacturers below cost of production and NAND having already reached spot cost levels. If DRAM/NAND prices fall another 29% in 1H23, DRAMs should also reach cash cost levels in 2Q23. Prospects for DRAM and NAND prices to reach cash cost levels should be seen as signs that the memory chip industry is near bottom.
No reduction in capital spending is positive for the stock price
For 2023, we estimate SEC investments to be comparable to last year at KRW53tn. Since a large portion of this sum has been allocated to future investments not directly related to production (i.e. EUV, infrastructure, R&D), memory investments should indeed mark a decrease of 13% year-on-year. According to research from our Quant team, companies like SEC that spend a lot of capex even during times of uncertainty (e.g. pandemic) tend to benefit from higher stock returns, as this serves as an indicator of confidence in the future demand. We believe the downward revisions to consensus earnings estimates following the company’s 4Q22 earnings call have ended (consensus OP 2023E of 16.8 tn KRW, based on a range of 9.7 tn ~21.4 tn KRW), and that stocks are now about to enter a phase where they are likely to be more sensitive to positive factors rather than negative ones.
