Daol Keeps Buy on Samsung Electronics, Sees Recovery in HBM and Foundry Competitiveness

Daol Investment & Securities said on July 31 that Samsung Electronics delivered two key messages investors had been waiting for during its earnings conference call a day earlier: grounds for confidence in a strong industry upcycle and a clear reaffirmation of its shareholder return policy. The brokerage maintained its buy rating and target price of 585,000 won ($422).

Ko Young-min, an analyst at Daol, wrote that Samsung Electronics posted second-quarter consolidated revenue of 171.5 trillion won ($123.4 billion) and operating profit of 89.5 trillion won ($64.4 billion), up 1,813.8% and 130.0% from a year earlier, respectively. The results beat market expectations and reflected strong semiconductor market conditions.

From the third quarter, high-bandwidth memory, or HBM, is set to make up a larger share of sales, while pricing under long-term agreements, or LTAs, will begin to feed through to earnings in earnest, Ko wrote. That means memory prices may be moving into a phase where sharp gains are harder to sustain than earlier in the cycle. Even so, prices in non-LTA transactions remain strong, which is a positive sign.

Daol said memory demand, driven mainly by AI servers, continues to hold up. Customers have not cut purchases even as prices rise somewhat.

Samsung said it had completed LTA negotiations with its five largest data-center customers and was in the final stages with additional clients, Ko wrote. As broader contracts are signed, that could leave Samsung with the most favorable pricing terms among the three memory makers: Samsung Electronics, SK Hynix and Micron.

The company also showed meaningful performance indicators in both HBM and foundry, where investors had been looking for proof of a fundamental recovery in competitiveness, he wrote. Starting with HBM4, Samsung's HBM market share now has a visible path toward a level comparable to its share in commodity DRAM.

In foundry, Samsung has secured orders from a large US cloud service provider and is making smooth progress in cooperation aimed at winning additional business from other major customers, including Broadcom, Ko wrote. That lays the groundwork for both Phase 1 and Phase 2 of its Taylor, Texas, fab to operate stably and profitably.

Samsung also reaffirmed on the call that it plans to use half of its free cash flow, or FCF, for shareholder returns, Ko wrote. He said that was an important message for investors because it confirmed the sustainability of the company's dividend policy. Based on that, Daol estimated the dividend yield at about 8.8%.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com