This is not a good year for Samsung Electronics (005930.KS/SSNLF). Apple’s (AAPL) new iPhone 6 series are so popular even the Koreans are ditching Samsung Galaxy. There is also power vacuum at the top, with its legendary chairman hospitalized since May and rumors circulating that Samsung has no incentive to pay dividends and boost share prices because its heirs do not want to pay higher inheritance taxes.
Samsung yesterday reported that its third-quarter profit fell by almost half from a year ago.
But things seem to be looking up. Its new Galaxy phones recently hit the market and its memory business is still doing well.
So is the worst behind us?
This morning,
Morgan Stanley, a skeptic, switched to the Buy camp and upgraded this stock with a new price target of 1.6 million won.
We are all worried that Samsung is being pushed by Apple on the top and by Chinese manufacturers from Xiaomi to Lenovo at the bottom. The China fear is overstated, according to analyst Shawn Kim:
China fears have caused de-rating, but we view this risk perception as exaggerated: Even if Samsung were to lose 100% of its profits from China, we think it could sustain an 11% mobile margin in 2015 and W145,000 EPS, which would put P/E at 11x and P/B at 1.2x at our price target of W1.6mn.
Samsung’s shares rose 4.7% trading at 1.24 million won. At the current price, Samsung is trading at 8.5 times Morgan Stanley’s earnings estimate, if it were losing all of its profits from China. Apple is a lot more expensive, trading at 13.9 times forward earnings.
Morgan Stanley also thinks Samsung’s new strategy of targeting mid-market consumers could work:....
UBS, also a skeptic, is not quite there yet and maintains a wait-and-see Neutral attitude. Here is analyst Nicolas Gaudois on Samsung today:
We may need to get closer to the 1H15 products refresh to get confidence. Whilst an update on shareholder returns is possible in 3 months (the co. will at least declare the dividend), whether this will meet expectations or not can also be dependent upon the underlying profits outlook.
We believe Samsung is right to re-focus its products offering in the low/mid end, whilst not losing sight of innovation in the high end. ......
blogs.barrons.com/asiastocks/2014/10/31/...ina-makes-no-money/