Focusing On Premium AI Smartphones And Sustainability Will Improve Future Prospects

Key Takeaways

• Focus on premium AI smartphones and memory upgrades is expected to boost revenue and margins through high-value sales.
  
• Advances in semiconductor and display technologies aim to enhance profitability and drive growth by capturing orders and entering new markets.
  
• Weak market conditions and increased costs in various segments are contributing to declines in revenue and profit margins, with limited near-term recovery prospects.

Catalysts

Engages in the consumer electronics, information technology and mobile communications, and device solutions businesses worldwide.

• Samsung Electronics is focusing on driving growth by increasing sales of smartphones that offer differentiated AI experiences in the premium segment, which is expected to positively impact revenue growth and margins due to higher price points.
  
• The memory division plans to accelerate tech migration to address demand for high value-added products like HBM and DDR5, which is likely to improve margins and drive revenue growth through increased sales of premium, high-performance products.
  
• The Foundry business is concentrating on securing orders from major customers and improving profitability in mature process technologies; additionally, they are ramping and stabilizing their 2-nanometer GAA technology, which is expected to grow earnings through both advanced technology engagements and maintaining competitiveness in the semiconductor industry.
  
• Samsung Display is committed to strengthening their leadership in high-end products and diversifying their portfolio by expanding into IT and automotive sectors, which can significantly drive revenue as they tap into new growth markets.
  
• The company is embracing sustainability, with initiatives like using recycled materials in new flagship models, which could enhance brand value and appeal, potentially leading to increases in revenue and improving overall company valuation.

Samsung Electronics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Samsung Electronics's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 12.2% in 3 years time.
• Analysts expect earnings to reach ₩43468.0 billion (and earnings per share of ₩7115.31) by about March 2028, up from ₩33621.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₩69346.0 billion in earnings, and the most bearish expecting ₩32805.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.7x on those 2028 earnings, up from 11.7x today. This future PE is greater than the current PE for the GB Tech industry at 10.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.35%, as per the Simply Wall St company report.

Samsung Electronics Future Earnings Per Share Growth

Risks

• Revenue has declined by 4% quarter-on-quarter due to various factors, including rising competition and fading launch effects for smartphone models, which could continue to impact future revenues.
  
• Operating profit decreased due to soft market conditions, especially for IT products, along with increased R&D expenditures, which has resulted in a decreased operating margin, affecting net margins negatively.
  
• The semiconductor business is expected to face ongoing weakness, with an anticipated limited improvement in performance for 2025, impacting future earnings in this critical division.
  
• The display market outlook remains conservative due to weak overall market demand for smartphones, which could continue to limit revenue and profit margins in the display segment.
  
• The foundry market is expected to contract due to seasonality, with earnings likely remaining weak because of sluggish mobile demand and higher fixed costs, which could continue to pressure earnings.

Valuation

• The analysts have a consensus price target of ₩73264.706 for Samsung Electronics based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩93000.0, and the most bearish reporting a price target of just ₩48000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩356768.6 billion, earnings will come to ₩43468.0 billion, and it would be trading on a PE ratio of 17.7x, assuming you use a discount rate of 8.3%.
• Given the current share price of ₩58500.0, the analyst price target of ₩73264.71 is 20.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.