Robotics And AI Will Transform Semiconductor And Display Markets

Key Takeaways

• Samsung Electronics is focusing on AI and robotics to drive future growth and secure industry leadership for long-term revenue increases.
  
• Strategic expansion in semiconductors and displays aims to boost market position, while shareholder value is prioritized through buybacks and dividends.
  
• Geopolitical risks, industry competition, and macroeconomic uncertainties pose significant challenges to Samsung Electronics' profitability and revenue stability.

Catalysts

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

• Samsung Electronics is aggressively pursuing new growth opportunities in robotics and AI, aiming to position itself as an industry leader. This could drive future revenue growth and improve earnings through innovation and market leadership in these areas.
  
• The company plans to capitalize on the robust demand for high-density products such as HBM and AI server memory, which is expected to increase due to advancements in AI and the launch of new CPUs. This could positively impact revenue and market position in the semiconductor segment.
  
• Samsung Display is expanding its product lineup to target increasing OLED demand in IT and automotive sectors, which could lead to higher revenue and margins from new high-growth markets.
  
• The Foundry business aims to ramp up production of advanced nodes like 2-nanometer GAA process, and expand customer orders in both advanced and mature nodes, enhancing profitability by securing more high-value customer orders.
  
• Samsung's commitment to shareholder value through strategic share buybacks and dividends suggests a focus on enhancing earnings per share and the overall attractiveness of the stock as an investment.

Samsung Electronics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Samsung Electronics's revenue will grow by 6.3% 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 ₩43938.9 billion (and earnings per share of ₩6626.0) by about May 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 ₩25700.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, up from 11.1x today. This future PE is greater than the current PE for the GB Tech industry at 15.7x.
• 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 8.62%, as per the Simply Wall St company report.

Samsung Electronics Future Earnings Per Share Growth

Risks

• The company's revenue in the DS (Device Solutions) division decreased by 17% due to a decline in HBM sales and deferred customer demand, which poses a risk to overall net margins.
  
• Global trade tensions and slowdowns in growth raise concerns for the semiconductor industry, potentially impacting earnings and net margins moving forward.
  
• Rising geopolitical risks and diversifying supply chains may lead to demand volatility, impacting revenue stability in the coming quarters.
  
• Heightened competition in the mobile display market, amid a challenging business environment, may strain profitability margins.
  
• Current macro uncertainties, such as U.S. tariff policies and rising component prices, pose a risk to the sustainability of cost improvements, potentially affecting operating profits.

Valuation

• The analysts have a consensus price target of ₩73942.206 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 ₩90000.0, 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 ₩360965.6 billion, earnings will come to ₩43938.9 billion, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 8.6%.
  
• Given the current share price of ₩55500.0, the analyst price target of ₩73942.21 is 24.9% 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.