Samsung Electronics Co., Ltd. (005930.KS)

Equity
Korea
Technology

RISK

RETURN

Key risk factors

Negligible price volatility

Strong & resilient to price shocks

Limited default risk

Key return factors

Weak growth

Decent dividends

Somewhat favourable analyst view

Corporate actions & dividendsDividend of KRW 361.000 with an ex-date of 27 Jun 2024.

Company profileSamsung Electronics Co., Ltd. engages in the consumer electronics, information technology and mobile communications, and device solutions businesses worldwide. It provides home appliances comprising of refrigerators, air dresser, washing machines, dryers, cooking appliances, dishwashers, vacuum cleaners, air conditioners, and air purifiers. The company also offers TVs, sound devices, smartphones, tablets, monitors, smart and LED signages, watches, and other accessories, as well as provides memory storage solutions. In addition, it provides medical equipment; software design, development, and supply; toll processing of semiconductors and display panels; general logistics agency, financing, marketing, consulting, and technology and cloud services; venture capital investment; enterprise automation solutions and connected services; installation and optimization services for network devices; and digital advertising platforms. The company serves retail, hospitality, finance, transportation, education, government, manufacturing, public safety, and healthcare industries. Samsung Electronics Co., Ltd. was founded in 1938 and is based in Suwon-si, South Korea.

Valuation: Fairly valued

Multiple

TTM

NTM

P/E

27.00

14.50

PEG

7.40

P/B

1.50

1.30

P/S

2.00

1.70

P/FCF

-47.30

48.90

EV/EBITDA

7.00

5.70

Considering past and projected metrics, the stock is neither 'expensive' nor 'cheap' compared to its peers. In particular, the stock is reasonably priced on P/E, 'cheap' on EV/EBITDA, and overvalued on P/FCF.

Performance: Mixed

Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 5ppts and its growth decelerated by 6ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.

Analyst view: Somewhat favourable

The average target price is 107091 and suggests 38% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 125000.0. This translates into 61% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 80000.0. This suggests 3% upside potential. Even the most pessimistic analyst believes there will be stock growth.

Profitability: Average

RoE

Samsung Electronics Co., Ltd. reported a return on equity (RoE) of 5.5% in the last 12 months, down from 17.1% in FY22. The market consensus projects an RoE of 11.6% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 4.2% in the last 12 months, a decrease from 12.5% in FY22. The market analysts predict that RoA will be 9.2% in FY24, more robust than its peers in this period.

RoCE

In the last 12 months, the return on capital employed (RoCE) declined to 5.1%, below the peers. The consensus estimate for FY24 for RoCE is 6.0%, again behind the peers.

Net margin

EBITDA margin

Historically, 005930.KS has reported good net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 7.4%, down from 18.1% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 25.6% in the last 12 months, a decline from 28.6% in FY22.

RoIC / WACC = 0.8(poor value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.8 in the past several years. This ratio implies a poor shareholder value creation.

Growth: Weak

Revenue

EBITDA

EPS

Free cash flow

005930.KS reported revenue of KRW 267 105 724mn in the last 12 months, up 3% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 36% from FY23 to KRW 2 899.18. Market expects EPS to reach KRW 4908.17 in FY24.Revenue has been growing very slowly over the past several years (middle negative), while EBITDA has declined in recent years (negative). Net income has fallen in recent years (negative). Free cash flow has naturally followed the declining EBITDA. We emphasize the highly volatile dynamics of FCF and EPS.

Dividends: Decent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are somewhat mixed. In the past 12 months, the dividend yield has been moderate and on par with its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Limited

The risk of default is minimal. We note strong positions in its industry, robust profitability, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to slow historical revenue growth.

Volatility: Negligible

In normal market circumstances, 005930.KS is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.

Stress-test: Negligible

In highly turbulent market conditions, 005930.KS is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.

Selling difficulty: Small

005930.KS has above average trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and is average on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.