Domestic Semiconductor Blue Chips Underperform, Eyeing a Reversal

In contrast to the strong stock performance of Nvidia and Micron, domestic blue-chip semiconductor stocks have shown sluggish performance.

Kim Rok-ho explained that this is due to downward revisions in Q3 earnings forecasts from analysts, driven by exchange rate fluctuations rather than fundamental issues.

Hana Securities maintained its target prices despite downward revisions in earnings estimates. This is because a 12-month forward estimation method was applied, which incorporates next year's earnings weighting over time.

As time progresses, next year's earnings weighting is reflected, limiting the impact of current downward revisions on target prices.

Large-scale schedules such as Nvidia's Vera Rubin Project are key variables determining HBM4 and LPDDR demand. The DGX Spark, a B2C product conceived as a personal supercomputer, drives memory demand within this larger trend, rather than based on individual sales volume.

The production speed and schedule of the Vera Rubin Project are expected to be key variables for HBM4 and LPDDR demand.

Hana Securities lowered its Q3 average exchange rate assumption from around 1,500 won at the Q2 review to approximately 1,415 won this time.

This 7-8% downward adjustment in the exchange rate assumption directly impacted sales and operating profit, which are estimated in dollars, leading to downward revisions in earnings.

Samsung Electronics' DRAM and NAND divisions performed better than expected with favorable price trends, but set business divisions such as smartphones, TVs, and home appliances are struggling.

As prices of IT components like MLCCs and substrates generally increased, the cost burden on set manufacturers grew, making it more likely that the set business division's deficit would widen compared to the previous quarter.

This is analyzed as a major factor that could lead to a miss in the set business division's earnings estimates rather than the memory semiconductor division's.

Sell-offs by individual investors and a shift in demand towards the materials, components, and equipment (SooBujang) sector are delaying stock recovery. While Micron's stock only fell about 10% from its June peak, domestic companies saw sharp declines of over 40%, creating a significant divergence from fundamentals, making now an opportune time to buy.

This is interpreted as a result of a combination of sell-offs by individual investors and a shift in demand to SooBujang, rather than a deterioration in fundamentals.

The current stock price adjustment phase is an excessive decline compared to fundamentals, suggesting it is an opportune time to buy, considering the potential for future stock price recovery.

This is because the increase in volume is limited by the capital investment schedule, and the elasticity of price increases may be dampened by long-term supply contracts.

Accordingly, demonstrating rising memory prices through better-than-expected earnings and emphasizing shareholder return policies based on stable ROE and free cash flow will become even more important.

It is pointed out that companies need to clearly demonstrate an upward trend through shareholder returns.

SK Hynix is expected to complete its share buyback program earlier than scheduled, in October, with nearly 1 trillion won in share buybacks occurring daily.

The company plans to announce additional shareholder return policies with its Q3 earnings release, with a greater emphasis on share buybacks rather than dividends. Additional shareholder return capacity is estimated to be at least 30 trillion won and up to 50 trillion won.

Of the estimated 100 trillion won in future shareholder return funds, 35 trillion won is expected to be used for dividends and 65 trillion won for share buybacks. There is speculation that a plan initially scheduled for January might be surprisingly revealed with the Q3 earnings announcement.

Future shareholder return funds are estimated to be around 100 trillion won, of which approximately 35 trillion won is expected to be paid as dividends to satisfy separate taxation income requirements.

The remaining approximately 65 trillion won is estimated to be used for share buybacks, which is expected to have a positive impact on enhancing shareholder value.

Despite persistent rumors about Solidigm's listing by SK Hynix, given Hynix's abundant cash flow, the need for capital raising is not significant.

As Solidigm is a crucial subsidiary within Hynix's consolidated earnings, some argue that a subsidiary listing might not be positive from a shareholder perspective.

From a purely shareholder perspective, the necessity of an IPO is questionable.

Front-end revenue growth is projected to peak at 40-60% this year and slow to 20-30% next year, while back-end growth is expected to accelerate from 10-30% this year to 30-50% next year.

Therefore, back-end equipment companies are likely to show more dynamic stock movements in the future, with a preference for companies like PSK Holdings in the back-end equipment sector.

The recent stagnation in Samsung Electronics and SK Hynix stock prices is diagnosed as largely due to supply-demand factors rather than fundamental issues.

Events such as share buybacks by both companies are scheduled to clear out selling pressure, which is expected to positively impact stock recovery.

With fundamentals strong enough to potentially surpass previous highs by the first half of next year, investors are advised to wait patiently.