KB Securities "Samsung Electronics and SK Hynix's sharp decline is excessive... performance actually improves."

KB Securities assessed on the 16th that the recent plunge in the stock prices of Samsung Electronics [005930] and SK Hynix [000660] was due to excessive adjustments due to the supply and demand gap in the domestic stock market and weakening investment sentiment rather than worsening performance.

Kim Dong-won, head of KB Securities' research division, said in a report that day, "The recent plunge in the stock prices of Samsung Electronics and SK Hynix is ​​judged to be an excessive adjustment caused by the supply and demand gap in the Korean stock market and weakening investment sentiment rather than fundamental damage."

This month, the Korean stock market fell 18.8%, a larger decline than Japan (-3.5%) and Taiwan (-2.0%).

During the same period, Samsung Electronics fell 21.8% and SK Hynix fell 28.9%.

The previous day, Samsung Electronics closed at 210,000 won, down 9.48% from the previous trading day, and SK Hynix closed at 1.262 million won, down 11.06%.

As the stock price fell significantly, KOSPI's price-to-earnings ratio (PER) fell to about 8 times based on confirmed performance by the second quarter.

KB Securities explained that this is close to the level of undervaluation similar to the global financial crisis in 2008 or COVID-19 in 2020.

On the other hand, it was analyzed that the semiconductor industry and corporate performance outlook are actually improving.

Director Kim said, “Despite the steep correction in stock prices, the performance forecasts for Samsung Electronics and SK Hynix are being adjusted upward.”

Taiwan's TSMC, which announced its third quarter earnings the previous day, said there were no signs of a slowdown in demand for artificial intelligence (AI) semiconductors, and earlier, Dutch semiconductor equipment company ASML also cited the fact that it mentioned in its recent earnings announcement that its customers' mid- to long-term demand forecasts are continuing to increase.

Market research firm Trend Force also predicted that DRAM prices will record a double-digit increase in the fourth quarter of this year.

Taking this into account, KB Securities believes that the recent plunge in semiconductor stocks is due to the financial market's risk-aversion sentiment being excessively reflected in stock prices, rather than the company's ability to generate profits being damaged.

The shareholder return policy that Samsung Electronics and SK Hynix will announce in their earnings announcements at the end of this month is also expected to be a variable in the future stock price rebound.

SK Hynix plans to hold a performance conference call on the 28th, and Samsung Electronics plans to hold a performance conference call on the 29th.

Director Kim said, "The current valuation pre-reflects the possibility of a decrease in future profits to a large extent, but the actual profit outlook is actually increasing due to the prolonged memory supply shortage and price rises."