December 27, 2019 Korea Morning Focus Company News & Analysis Major Indices Close Chg Chg (%) Samsung Electronics (005930/Buy/TP: W70,000) Raise TP KOSPI 2,197.93 7.85 0.36 Profit growth set to resume; Raise TP KOSPI 200 294.06 1.16 0.40 KOSDAQ 652.07 13.16 2.06 Turnover ('000 shares, Wbn) Volume Value KOSPI 562,160 4,795 KOSPI 200 66,940 3,065 KOSDAQ 901,586 4,353 Market Cap (Wbn) Value KOSPI 1,477,950 KOSDAQ 235,648 KOSPI Turnover (Wbn) Buy Sell Net Foreign 604 644 -40 Institutional 1,305 845 460 Retail 2,781 3,249 -467 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 616 384 232 Institutional 495 167 328 Retail 3,190 3,735 -544 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 787 592 195 KOSDAQ 642 383 258 Advances & Declines Advances Declines Unchanged KOSPI 607 230 71 KOSDAQ 982 261 104 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 55,400 400 526 Celltrion 189,500 4,500 390 KODEX Kosdaq150 8,300 400 214 Leverage Hanjin KAL 38,700 -4,200 192 Hynix 94,800 1,000 147 KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value HLB 101,000 900 226 GemVax 35,400 2,950 205 Celltrion Healthcare 57,300 2,100 117 Energy Solutions 27,250 1,400 111 Telcon RF Pharm. 5,030 -430 105 Note: As of December 26, 2019 This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. 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This document may not be reproduced, further distributed or published in whole or in part for any purpose. Samsung Electronics (005930 KS) Profit growth set to resume; Raise TP Technology 4Q19 preview: Solid OP of W6.97tr (-35.5% YoY, -10.4% QoQ) Company Report For 4Q19, we forecast Samsung Electronics (SEC) to deliver revenue of W58.69tr (-1.0% December 27, 2019 YoY, -5.4% QoQ) and operating profit of W6.97tr (-35.5% YoY, -10.4% QoQ), up 1.1% and 10.2% from our previous estimates of W58.02tr and W6.32tr, respectively. The market is looking for revenue of W61tr and operating profit of W6.57tr. By business division, we expect operating profit of: 1) W0.63tr (unchanged) for (Maintain) Buy consumer electronics (CE); 2) W2.74tr (including W0.23tr from the networks business; vs. previous estimate of W2.25tr) for IT & mobile communications (IM); 3) W3.18tr (vs. Target Price (12M, W) ▲ 70,000 previous estimate of W3.03tr) for semiconductors; and 4) W0.34tr (unchanged) for display. We estimate overall OP margin at 11.9% (-6.4%p YoY, -0.7%p QoQ). Share Price (12/26/19, W) 55,400 We revised up our operating profit forecasts for the semiconductor and smartphone businesses. For semiconductors, we believe DRAM prices have fallen less than Expected Return 26% previously anticipated. We now see ASP declining 7% QoQ, vs. -9% QoQ previously. For IM, despite the waning impact of the Galaxy Note 10, we expect margins to be better than previously projected, thanks to scale effects. Currency effects should also have a OP (19F, Wbn) 27,576 positive impact. Consensus OP (19F, Wbn) 27,144 Following four straight quarters of YoY declines in 2019, quarterly operating EPS Growth (19F, %) -46.6 profit should grow YoY throughout 2020 Market EPS Growth (19F, %) -33.4 P/E (19F, x) 17.2 For the 2019 full year, we look for revenue of W229.2tr (-6.0%) and operating profit of Market P/E (19F, x) 15.0 W27.58tr (-53.2%). We see semiconductor operating profit plunging from W44.57tr in KOSPI 2,197.93 2018 to W13.75tr in 2019 due to the steep decline in memory prices. Market Cap (Wbn) 330,726 Looking ahead to 2020, we forecast revenue to grow to W245.56tr (+7.1%) and Shares Outstanding (mn) 6,793 operating profit to improve to W38.88tr (+41.0%). By business division, we expect Free Float (%) 78.8 operating profit of: 1) W2.38tr for CE; 2) W11.19tr for IM; 3) W22.16tr for Foreign Ownership (%) 57.0 semiconductors; and 4) W2.86tr for display. We expect semiconductors to be the Beta (12M) 1.59 primary driver of profit growth. The IM division should benefit from higher ASP on increased sales of foldable smartphones, while the display division should see stronger 52-Week Low 37,450 small-sized OLED revenue from China. 52-Week High 56,700 For semiconductors, we upped our 2020 and 2021 operating profit estimates by 4.8% (%) 1M 6M 12M and 5.2%, respectively (to W22.16tr and W33tr), reflecting changes in the DRAM ASP Absolute 6.9 21.2 44.5 outlook. As SEC’s 1Xnm server DRAM inventory meaningfully comes down, market Relative 3.2 17.0 33.3 prices should rise faster than anticipated. 160 Samsung Electronics KOSPI Maintain Buy and raise TP to W70,000 140 In 2019, SEC’s quarterly operating profit has declined at a rate of roughly 50% YoY. 120 From 1Q20, we believe quarterly operating profit will begin to grow YoY. The IM 100 division’s competitiveness should also strengthen with the release of foldable phones. We maintain our Buy rating on SEC and raise our target price from W60,000 to 80 12.18 4.19 8.19 12.19 W70,000, applying a P/B of 1.71x (30% premium to five-year average; vs. 1.51x, previously). Mirae Asset Daewoo Co., Ltd. [ Telecom Equipment/Electronic FY (Dec.) 12/16 12/17 12/18 12/19F 12/20F 12/21F Components] Revenue (Wbn) 201,867 239,575 243,771 229,201 245,561 261,970 Wonjae Park OP (Wbn) 29,241 53,645 58,887 27,576 38,876 52,570 +822-3774-1426 OP Margin (%) 14.5 22.4 24.2 12.0 15.8 20.1 [email protected] NP (Wbn) 22,416 41,345 43,891 21,860 29,985 40,167 Chuljoong Kim EPS (W) 2,735 5,421 6,024 3,218 4,414 5,913 +822-3774-1464 ROE (%) 12.5 21.0 19.6 8.7 11.1 13.5 [email protected] P/E (x) 13.2 9.4 6.4 17.2 12.6 9.4 Young-gun Kim P/B (x) 1.5 1.8 1.1 1.4 1.3 1.2 +822-3774-1448 Dividend Yield (%) 1.6 1.7 3.7 2.6 2.6 2.6 [email protected] Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Mirae Asset Daewoo Research Key Universe Valuations December 27, 2019 ※All data as of close December 24, 2019, unless otherwise noted. 19F Earnings growth Mkt Cap Price P/E (x) P/B (x) ROE (%) Ticker Company Div Yield OP EPS (Wbn) (W) (%) 19F 20F 19F 20F 19F 20F 19F 20F 19F 20F 005930 Samsung Electronics 330,726 55,400 2.6 -53.2 41.0 -46.6 37.2 17.2 12.6 1.4 1.3 8.7 11.1 000660 SK Hynix 69,015 94,800 1.6 -85.8 150.5 -85.5 140.0 30.5 12.7 1.4 1.2 4.7 10.7 035420 NAVER 29,749 180,500 0.2 -17.8 77.0 -47.3 132.4 87.1 37.5 4.4 3.9 6.3 13.4 005380 Hyundai Motor 26,174 122,500 3.3 49.6 41.9 118.5 48.0 10.5 7.1 0.5 0.4 4.7 6.6 012330 Hyundai Mobis 24,875 261,000 1.9 17.9 16.4 24.3 17.1 10.8 9.2 0.8 0.7 7.3 7.9 068270 Celltrion 24,320 189,500 - - - - 0.0 0.0 051910 LG Chem 21,742 308,000 1.3 -55.7 70.9 -72.5 164.0 59.5 22.5 1.4 1.3 2.4 6.1 055550 Shinhan Financial Group 21,695 45,750 12.3 3.9 10.0 -0.2 6.2 6.3 0.5 0.5 9.1 8.4 005490 POSCO 21,186 243,000 4.5 -23.9 -9.2 37.8 -0.3 9.1 9.1 0.5 0.4 5.3 5.1 105560 KB Financial Group 20,655 49,400 9.3 2.3 12.6 0.9 6.0 5.9 0.5 0.5 9.2 8.5 028260 Samsung C&T 20,202 106,500 1.9 -27.7 39.8 -42.8 17.9 20.8 17.6 0.6 0.6 4.0 3.9 017670 SK Telecom 19,742 244,500 4.1 7.3 -3.5 -60.6 68.2 16.0 9.5 0.8 0.7 5.4 8.8 051900 LG H&H 19,632 1,257,000 0.9 12.8 9.7 16.5 10.7 24.7 22.3 5.4 4.6 20.3 19.1 034730 SK Holdings 18,470 262,500 1.9 -2.8 21.5 -36.6 11.0 13.0 11.7 1.0 0.9 8.2 8.3 000270 Kia Motors 18,282 45,100 2.0 70.4 29.1 79.8 24.5 8.8 7.1 0.6 0.6 7.4 8.5 015760 KEPCO 17,750 27,650 - - - - - 144.8 0.3 0.3 - 0.2 032830 Samsung Life 15,320 76,600 - - - - 0.0 0.0 006400 Samsung SDI 15,300 222,500 0.4 -33.0 108.9 -38.3 99.8 36.2 18.1 1.2 1.1 3.5 6.7 018260 Samsung SDS 15,050 194,500 1.3 10.4 12.3 10.3 11.8 21.7 19.4 2.3 2.1 11.1 11.3 096770 SK Innovation 14,332 155,000 4.1 -42.8 18.2 -68.7 92.4 28.1 14.6 0.8 0.7 2.8 5.4 033780 KT&G 13,400 97,600 4.3 12.8 5.6 17.5 5.1 12.6 12.0 1.5 1.4 12.7 12.6 003550 LG Corp.