Asia Memory-Bad memories fading

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TMT Memory Devices Technology 8 October 2010 abc Samsung Electronics: Consolidated P&L summary (K-IFRS) Revenue (KRWbn) 2009 2010e 2011e 2012e 1Q10 2Q10 3Q10e 4Q10e 1Q11e 2Q11e 3Q11e 4Q11e Semicon 26,808 37,461 40,639 44,382 8,205 9,530 9,869 9,857 9,377 9,836 10,555 10,871 Memory 16,770 26,041 27,173 28,796 5,585 6,710 6,937 6,809 6,207 6,539 7,125 7,302 LSI 4,400 5,052 6,160 7,511 1,160 1,235 1,296 1,361 1,429 1,501 1,576 1,654 TFT-LCD 25,837 28,968 30,222 31,280 6,850 7,760 7,302 7,056 6,987 7,434 7,755 8,046 Telecom 37,591 38,952 41,833 42,845 9,182 8,780 10,148 10,842 9,749 9,962 10,896 11,227 Mobile 34,707 35,032 34,593 32,648 8,572 8,050 9,106 9,305 8,457 8,411 8,826 8,898 Digital media 51,262 60,396 66,151 69,841 12,610 14,540 15,968 17,279 15,385 15,867 16,727 18,172 VD 32,834 37,170 40,899 42,757 7,390 8,590 9,998 11,192 9,272 9,571 10,400 11,655 Appliances 9,682 11,887 12,543 12,780 2,473 3,170 3,107 3,138 3,075 3,167 3,104 3,197 Total 136,324 156,476 169,642 178,822 34,638 37,890 41,064 42,884 39,370 40,835 43,571 45,865 Revenue, % of total 2009 2010e 2011e 2012e 1Q10 2Q10 3Q10e 4Q10e 1Q11e 2Q11e 3Q11e 4Q11e Semicon 20% 24% 24% 25% 24% 25% 24% 23% 24% 24% 24% 24% Memory 12% 17% 16% 16% 16% 18% 17% 16% 16% 16% 16% 16% LSI 3% 3% 4% 4% 3% 3% 3% 3% 4% 4% 4% 4% TFT-LCD 19% 19% 18% 17% 20% 20% 18% 16% 18% 18% 18% 18% Telecom 28% 25% 25% 24% 27% 23% 25% 25% 25% 24% 25% 24% Mobile 25% 22% 20% 18% 25% 21% 22% 22% 21% 21% 20% 19% Digital media 38% 39% 39% 39% 36% 38% 39% 40% 39% 39% 38% 40% VD 24% 24% 24% 24% 21% 23% 24% 26% 24% 23% 24% 25% Appliances 7% 8% 7% 7% 7% 8% 8% 7% 8% 8% 7% 7% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Revenue, change (%) 2009 2010e 2011e 2012e 1Q10 2Q10 3Q10e 4Q10e 1Q11e 2Q11e 3Q11e 4Q11e Semicon 20% 40% 8% 9% 2% 16% 4% 0% -5% 5% 7% 3% Memory 20% 55% 4% 6% 11% 20% 3% -2% -9% 5% 9% 2% LSI 5% 15% 22% 22% na 6% 5% 5% 5% 5% 5% 5% TFT-LCD 20% 12% 4% 4% -6% 13% -6% -3% -1% 6% 4% 4% Telecom 18% 4% 7% 2% -10% -4% 16% 7% -10% 2% 9% 3% Mobile 20% 1% -1% -6% -8% -6% 13% 2% -9% -1% 5% 1% Digital media 15% 18% 10% 6% -19% 15% 10% 8% -11% 3% 5% 9% VD 13% 13% 10% 5% -28% 16% 16% 12% -17% 3% 9% 12% Appliances 13% 23% 6% 2% -3% 28% -2% 1% -2% 3% -2% 3% Total 12% 15% 8% 5% -12% 9% 8% 4% -8% 4% 7% 5% OP (KRWbn) 2009 2010e 2011e 2012e 1Q10 2Q10 3Q10e 4Q10e 1Q11e 2Q11e 3Q11e 4Q11e Semicon 2,059 10,511 8,328 8,249 1,995 2,903 3,013 2,599 1,781 2,015 2,284 2,248 TFT-LCD 1,707 2,367 2,484 2,572 491 878 529 468 568 584 680 652 Telecom 4,091 3,603 5,013 5,229 1,104 626 948 925 1,060 1,273 1,519 1,161 Digital media 3,060 1,743 2,247 2,476 519 361 431 432 462 555 669 561 Total 10,925 18,785 18,072 18,536 4,406 5,014 4,942 4,424 3,870 4,427 5,153 4,622 OPM (%) 2009 2010e 2011e 2012e 1Q10 2Q10 3Q10e 4Q10e 1Q11e 2Q11e 3Q11e 4Q11e Semicon 7.7% 28.1% 20.5% 18.6% 24.3% 30.5% 30.5% 26.4% 19.0% 20.5% 21.6% 20.7% TFT-LCD 6.6% 8.2% 8.2% 8.2% 7.2% 11.3% 7.2% 6.6% 8.1% 7.9% 8.8% 8.1% Telecom 10.9% 9.3% 12.0% 12.2% 12.0% 7.1% 9.3% 8.5% 10.9% 12.8% 13.9% 10.3% Digital media 6.0% 2.9% 3.4% 3.5% 4.1% 2.5% 2.7% 2.5% 3.0% 3.5% 4.0% 3.1% Total 8.0% 12.0% 10.7% 10.4% 12.7% 13.2% 12.0% 10.3% 9.8% 10.8% 11.8% 10.1% OP, % of total 2009 2010e 2011e 2012e 1Q10 2Q10 3Q10e 4Q10e 1Q11e 2Q11e 3Q11e 4Q11e Semicon 19% 56% 46% 45% 45% 58% 61% 59% 46% 46% 44% 49% TFT-LCD 16% 13% 14% 14% 11% 18% 11% 11% 15% 13% 13% 14% Telecom 37% 19% 28% 28% 25% 12% 19% 21% 27% 29% 29% 25% Digital media 28% 9% 12% 13% 12% 7% 9% 10% 12% 13% 13% 12% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% OP, change (%) 2009 2010e 2011e 2012e 1Q10 2Q10 3Q10e 4Q10e 1Q11e 2Q11e 3Q11e 4Q11e Semicon na 411% -21% -1% 50% 46% 4% -14% -31% 13% 13% -2% TFT-LCD na 39% 5% 4% -8% 79% -40% -12% 21% 3% 17% -4% Telecom na -12% 39% 4% 6% -43% 51% -2% 15% 20% 19% -24% Digital media na -43% 29% 10% 11% -30% 20% 0% 7% 20% 20% -16% Total na 72% -4% 3% 28% 14% -1% -10% -13% 14% 16% -10% Source: Company data, HSBC estimates 91
TMT Memory Devices Technology 8 October 2010 abc Financials & valuation: Samsung Electronics Overweight Financial statements Year to 12/2009a 12/2010e 12/2011e 12/2012e Profit & loss summary (KRWb) Revenue 136,324 156,476 169,642 178,822 EBITDA 22,085 31,263 32,792 34,066 Depreciation & amortisation -11,159 -12,478 -14,720 -15,530 Operating profit/EBIT 10,925 18,785 18,072 18,536 Net interest -205 -323 -460 -528 PBT 12,192 20,413 20,103 19,845 HSBC PBT 12,192 20,413 20,103 19,845 Taxation -2,431 -3,992 -3,923 -3,069 Net profit 9,761 16,420 16,180 16,777 HSBC net profit 9,761 16,420 16,180 16,777 Cash flow summary (KRWb) Cash flow from operations 20,352 21,212 28,279 31,238 Capex -8,520 -19,131 -22,008 -19,214 Cash flow from investment -10,555 -24,199 -27,947 -33,018 Dividends -871 -947 -1,277 -2,043 Change in net debt -10,104 4,264 1,710 3,823 FCF equity 12,276 2,850 6,151 11,902 Balance sheet summary (KRWb) Intangible fixed assets 891 941 991 1,042 Tangible fixed assets 39,816 46,419 53,656 57,290 Current assets 62,069 58,683 64,457 74,012 Cash & others 21,570 14,824 18,669 27,069 Total assets 118,281 126,189 142,272 159,090 Operating liabilities 30,816 28,588 30,534 32,618 Gross debt 14,411 9,403 9,403 9,403 Net debt -5,055 -791 919 4,742 Shareholders funds 73,054 88,198 102,336 117,070 Invested capital 50,457 62,631 69,902 72,658 Ratio, growth and per share analysis Year to 12/2009a 12/2010e 12/2011e 12/2012e Y-o-y % change Revenue 12.4 14.8 8.4 5.4 EBITDA 36.9 41.6 4.9 3.9 Operating profit 81.1 71.9 -3.8 2.6 PBT 85.3 67.4 -1.5 -1.3 HSBC EPS 53.6 68.2 -1.5 3.7 Valuation data Year to 12/2009a 12/2010e 12/2011e 12/2012e EV/sales 0.8 0.7 0.6 0.6 EV/EBITDA 4.8 3.4 3.3 3.2 EV/IC 2.1 1.7 1.5 1.5 PE* 13.8 8.2 8.3 8.0 P/NAV 1.8 1.5 1.3 1.2 FCF yield (%) 11.1 2.6 5.8 11.4 Dividend yield (%) 1.0 1.5 1.5 1.5 Note: * = Based on HSBC EPS (fully diluted) Issuer information Share price (KRW) 793,000 Target price (KRW) 1,139,0 00 Potent’l tot rtn (%) 43.6 Reuters (Equity) 005930.KS Bloomberg (Equity) 005930 KS Market cap (USDm) 103,351 Market cap (KRWb) 116,808 Free float (%) 69 Enterprise value (KRWb) 10704 Country Korea Sector Semiconductors Analyst Nam Park Contact 852 2996 6591 Price relative 941588 841588 741588 641588 541588 441588 341588 Source: HSBC 2008 2009 2010 2011 Samsung Electronics Rel to KOSPI INDEX Note: price at close of 06 Oct 2010 941588 841588 741588 641588 541588 441588 341588 Ratios (%) Revenue/IC (x) 2.6 2.8 2.6 2.5 ROIC 17.1 27.1 22.3 22.4 ROE 14.4 20.4 17.0 15.3 ROA 9.2 13.9 12.5 11.5 EBITDA margin 16.2 20.0 19.3 19.1 Operating profit margin 8.0 12.0 10.7 10.4 EBITDA/net interest (x) 107.9 96.9 71.3 64.5 Net debt/equity -6.9 -0.9 0.9 4.1 Net debt/EBITDA (x) -0.2 0.0 0.0 0.1 CF from operations/net debt 3076.4 658.7 Per share data (KRW) EPS Rep (fully diluted) 57,370 96,516 95,105 98,610 HSBC EPS (fully diluted) 57,370 96,516 95,105 98,610 DPS 7,500 12,000 12,000 12,000 NAV 429,398 518,410 601,508 688,111 92
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