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TMT<br />
<strong>Memory</strong> Devices Technology<br />
8 October 2010<br />
abc<br />
Valuations, ratings<br />
Maintain TP and OW rating on Samsung. Lower TP on Hynix, but<br />
maintain OW(V)<br />
Lower TP on Elpida, Nanya Tech, Winbond and Elpida. Maintain<br />
OW(V) for Elpida and Winbond, and N(V) for Inotera and Nanya<br />
We expect valuation divergence as product mix and cost structure<br />
drive profitability for leaders<br />
In the past six months, memory stocks have<br />
underperformed their respective markets on<br />
concerns that the memory cycle peaked out in 2Q.<br />
Among our coverage, with the exception of<br />
Winbond, pure memory plays have lagged their<br />
indices by 20-52%. Samsung, being a diversified<br />
tech conglomerate, underperformed KOSPI by<br />
11%, with semiconductor revenue representing<br />
25% of its revenue. The market penalised Nanya<br />
and Inotera (underperformed by c40%), on delays<br />
of their 5xnm migration.<br />
Concerns over memory price correction could<br />
linger (until data points emerge indicating a<br />
deceleration), we expect price performance<br />
divergence between vendors to be more<br />
pronounced going forward; we expect the market to<br />
favour vendors that are capable of accelerating<br />
process migration and improving their product mix.<br />
Our top sector pick is Samsung Electronics based<br />
on its unparalleled overall memory positioning and<br />
compelling valuations, in addition to its diversified<br />
technology portfolio. We also like Hynix and<br />
Elpida for their strong DRAM positioning (inhouse<br />
technology, process migration) and their<br />
leading positions in mobile DRAM. Both Elpida<br />
Stock performances relative to respective markets (%)<br />
10<br />
0<br />
-10<br />
-20<br />
-30<br />
-40<br />
-50<br />
-60<br />
SEC<br />
Source: Bloomberg<br />
Hynix<br />
Elpida<br />
Nanya<br />
Inotera<br />
6 months 3 months 1 month<br />
Winbond<br />
and Winbond are trading below 1x P/B. Trading at<br />
0.5x FY11e P/B, Elpida’s valuations look very<br />
attractive for FY2011e. We think most of the<br />
negative news have been priced in and the stock is<br />
oversold. We also like Winbond’s non-PC DRAM<br />
portfolio and believe it is a defensive portfolio<br />
amid commodity DRAM price correction cycle<br />
given its attractive valuation.<br />
We believe the Taiwanese performance should<br />
still be limited until signs of improvement from<br />
55
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