Asia Memory-Bad memories fading

TMT
Memory Devices Technology
8 October 2010
abc
Samsung Electronics (005930)
Leading DRAM and NAND technologies, market share, strong
balance sheet and vertical integration make SEC our top pick
Samsung’s strong product mix and accelerated process migration
leverages into structural growth areas such as mobile, servers
Remain OW, TP unchanged at KRW1,139,000. An HSBC Asia
Super Ten idea
Investment summary
For detailed analysis, please refer to our recent
40-page report, Samsung Electronics – OW:
Comprehensive health check, 24 September 2010.
The memory leader
Samsung Electronics is our preferred play in the
memory sector. Samsung has:
Highly competitive technologies and leading
market share leadership in both DRAM and
NAND (which is faster growing).
Leading process migration, having started
35nm DRAM production in 3Q10. We also
expect 2xnm NAND production to start in
4Q10.
Strong presence in promising technologies
such as phase change memory. Only Micron
now has a comparable product portfolio post
its recent acquisition of Numonyx.
A massive balance sheet (cUSD10bn net cash
at the parent level at end-2009) cash flow
backing R&D and capex where necessary.
currently playing out with rapid process
migration and slew of advanced products.
A level of vertical integration that is unique
amongst its peers, giving it access to a vast
internal market of electronics products.
Valuations, rating
Valuations summary
Methodology Value (KRW) Criteria
PB 1,323,318 2.2x FY11e BVPS
Sum of parts 978,350
DCF 1,079,363 12%
Average 1,127,010
Dividend 12,000
Target price 1,139,010
Current price 793,000
Up(downside) 43.6%
Source: HSBC
To value Samsung Electronics, we use an average
of 2011e PB (2.2x target multiple), sum-of-theparts,
and DCF valuations (12% WACC with riskfree
rate 4%, equity risk premium 8%, β=1) to
derive a 12-month target price of KRW1,139,000.
Our price assumes a dividend of KRW12,000.
Determination to expand leadership with more
advanced and cost-effective technologies,
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