[ANALYSIS] With Lee's release from prison, Samsung shares set to rise - Korea Times
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[ANALYSIS] With Lee's release from prison, Samsung shares set to rise

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Samsung Electronics' Galaxy smartphone inside one of its official stores in Korea is seen in this photo, last week. Yonhap
Samsung Electronics' Galaxy smartphone inside one of its official stores in Korea is seen in this photo, last week. Yonhap

Investors anticipate updates in Samsung's future plans

By Kim Yoo-chul

All of the company's numbers ― from profit margin and operating profit to sales ― are strong, and analysts have no big questions over its business outlook for the rest of the year. However, Samsung Electronics shares have been trapped in a boxed-in range for more than five months.

Samsung, the country's largest conglomerate, posted a net income of 9.45 trillion won (approximately $8.3 billion) for the three months ending in June. Operating profit spiked more than 50 percent, year-on-year. These figures were far higher than earlier analyst estimates. In a conference call to investors, after releasing the breakdown of its quarterly divisional performances, Samsung executives said the current and forthcoming quarter will also be better than expected.

But despite such brisk quarterly results and optimism from its senior executives handling the company's core semiconductor, mobile phone and display businesses, Samsung Electronics stocks have failed to budge.

After a 50:1 stock split back in 2018, a decision that was aimed at making it far easier for retail investors to buy into the South Korean technology heavyweight, the number of retail investors soared.

By the end of the second quarter of this year, the total number of Samsung Electronics shareholders, including those invested in ordinary and preferred shares, reached 5.75 million, up from 2.96 million last year. Previously dubbed an "emperor stock" for its high price, Samsung shares were renamed "the people's stock" after the split.

Samsung Electronics shares, which started trading at 81,000 won per ordinary share early this year, have been stuck at around 78,000 won as of July. By comparison, Google shares have risen by more than 50 percent so far this year, and the growth rates of Nvidia, Cisco, Apple and Microsoft shares were 47 percent, 24 percent, 14 percent and 29 percent.

The relationship between a company's earnings and profits, and its stock price is complicated.

Higher profits and margins don't necessarily mean a higher share price, whereas big losses don't always lead to a low share price. Obviously, while it's true to say that, without healthy earnings, it's hard for companies to stay afloat, investors and analysts say the future course of Samsung Electronics shares will be dependent upon the whereabouts of its leader Lee Jae-yong, who has been serving a prison term after being convicted in a bribery case related to impeached and jailed former President Park Geun-hye.

"I would say foreign and institutional investors are weighing more on the effects of a so-called managerial vacuum. While quarterly performances are very impressive and Samsung will be good for the remainder of this year from a profit standpoint, all core decisions have been put on hold. This has raised doubts over Samsung's future sustainability. I've also advised my clients to hold on Samsung Electronics stocks until there are any updates about Lee," said a senior fund manager at a European-based investment bank in Seoul.

As of the first quarter of this year, Samsung's cash- and cash-equivalent assets reached 209 trillion won; however, other than its early acquisition of Harman, no deals have been made since Lee was put behind bars.

A man walks in front of a Samsung Electronics' building last week. Yonhap
A man walks in front of a Samsung Electronics' building last week. Yonhap

Analysts say Samsung Electronics' shares are highly likely to see the possibility of an upturn after mid-August, as there is growing optimism that Lee could be freed from prison on August 15 Liberation Day. People are currently speculating on the type of release Lee could be granted, though some local reports believe President Moon Jae-in may grant him a special pardon.

Still "a top pick"

But based on recent polls and the justice ministry's apparent stance, there is a high chance for Lee to be freed on parole with the ministry granting special approval for the Samsung leader to come back to lead the conglomerate's management, some political analysts said.

"After Lee's release from prison, Samsung Electronics could unveil a series of future plans. Given the abundance of its cash reserves, the company could specify acquisition targets for sustainability. But this is the sort of job only the company's owner can handle. Investors are anticipating remarks from Lee regarding the corporation's future after Liberation Day," said a senior analyst at a foreign investment bank in Seoul, who asked not to be identified as he wasn't authorized to speak to the media officially.

So far this year, overseas investors have sold 13.27 trillion won worth of Samsung Electronics shares, while institutional investors also dumped more than 14 trillion won worth. Retail investors bought 26.6 trillion won of these shares, according to data from the Korea Exchange (KRX).

Credit Suisse picked Samsung Electronics as one of its top picks in Asia with a target price of 126,000 won per ordinary share, as it expects Samsung will be a top beneficiary of the current semiconductor shortage and the growing demand for OLED devices.

"Both the company's memory and non-memory chip businesses will continue seeing a structural improvement throughout this year. For its memory chip business, it is near to increasing its production yield in 128-layer NAND flash chips and 15-nanometer DRAM chips, which are core factors that help Samsung save costs. Its logic-chip business division will be positioned to charge its clients more," Kim Kyung-min, an analyst at Hana Financial said. "Because Samsung should be able to improve its cost competitiveness with new technologies, from a business standpoint, it will move away from its current boxed-in trading range after August."

Chip stocks have underperformed on the KOSPI as expectations of a "super cycle" have turned to disappointment, said Hwang Min-sung, an analyst at Samsung Securities. He cited an increase in memory chip production and worries over the sustainability of pandemic-induced demand. Samsung Electronics' share price generally reflects the overall outlook for the global memory market at least six to 12 months into the future, analysts say. Samsung is the global leader in the production of memory chips.
Kim Yoo-chul yckim@koreatimes.co.kr

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