Abstract:
KB Securities, South Korea's leading brokerage, said on Monday,
The current stock prices of Samsung Electronics and SK Hynix are undervalued to the same extent as during the global financial crisis
Dang. Both companies' profits soared, but their stock prices failed to keep up with the earnings gains.
Although the share prices of Samsung and SK Hynix have risen 65% and 88% respectively this year, as of the close of trading on October 23, the share prices of the two companies were 36% and 52% lower than their highs in late June respectively.
KB Securities Research Department Head Kim Dong-won stated in a report released on October 26,
The price-to-earning ratios of these two companies have dropped to about 3 times
.
"Samsung Electronics and SK Hynix have entered a stage of underestimation comparable to past financial crises, with a huge divergence between earnings and stock prices. The market should now focus on future earnings growth and the possibility of valuation restoration, rather than the pessimism already reflected in stock prices." Kim Dong-won said.
KB Securities estimates,
The combined operating profits of Samsung and SK Hynix this year and next will reach 1,571 trillion won. This is 2.1 times the cumulative operating profit of the two companies of 748 trillion won in the 26 years from 2000 to 2025
. Among them, Samsung Electronics’ operating profit next year is expected to be 555 trillion won, and SK Hynix’s is 389 trillion won, a year-on-year increase of 51% and 50% respectively.
KB Securities believes that the profit growth of these two memory chip giants next year has basically been locked in. According to its estimates, 70% to 80% of the memory chips that the two companies will produce next year have already locked in buyers in advance through five-year long-term agreements with large global technology companies.
Currently, foreign investors hold 46.1% of Samsung Electronics and 48.8% of SK Hynix, both of which are the lowest levels since the financial crisis in 2008 and significantly lower than the historical highs of 59.7% for Samsung Electronics in 2001 and 54.7% for SK Hynix in 2024.
KB Securities stated that the market’s concerns about the profitability of AI investments at the beginning of this year have spread to concerns about the AI industry’s increased financial burden and possible reductions in expenditures, causing both foreign capital inflows and investor sentiment to freeze.
However, KB Securities pointed out that market sentiment towards chip manufacturers is changing. Citadel CEO Ken Griffin, who was once skeptical of the AI industry, has become more optimistic, and Nvidia CEO Jensen Huang has also downplayed the possibility of a memory chip oversupply in 2029. The brokerage firm judged that the market's concerns about the AI industry have passed the peak and entered the easing stage.
Samsung Electronics and SK Hynix will release their third-quarter financial reports this week. The two companies are expected to have a combined operating profit of 184.4 trillion won (approximately US$139.1 billion) this quarter. As the three major highlights of this financial report, investors will focus on HBM4 supply, long-term agreements and shareholder returns.
While both companies are on track to post record profits, they both face significant investment challenges. To meet growing market demand, they must continue to invest heavily in production facilities and advanced manufacturing processes.
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