SK Securities has raised its target prices for Samsung Electronics (005930.KS) and SK hynix (000660.KS) to 500,000 won and 3 million won, respectively. Despite the ongoing rally in large-cap semiconductor stocks, the brokerage said the shares remain undervalued given expected chip price increases and supply shortages.
In a report released Tuesday, SK Securities said, "We have raised the target price-to-earnings (PER) ratios, which had been lowered to reflect economic concerns from the U.S.-Iran war, back to previous levels." The brokerage applied multiples of 13 times for Samsung Electronics and 10 times for SK hynix, the upper range of PERs since last year.
Earnings forecasts were also raised. Samsung Electronics' operating profit for this year was revised up 3% to 338 trillion won, while SK hynix was raised 4% to 262 trillion won. Next year's operating profit is projected to rise 18% for Samsung Electronics to 494 trillion won and 15% for SK hynix to 376 trillion won.
"Despite the share price rally, the 12-month forward PER for Samsung Electronics and SK hynix stands at 6 times and 5.2 times, respectively," SK Securities said. "Considering their top-tier profitability and earnings among global AI-related stocks, improved structural earnings stability, and the expanding buyer base for Korean memory names, the emergence of their undervaluation appeal is still in the early stages."
The brokerage added, "The journey of 12-month forward earnings per share (EPS) growth and re-rating will be accompanied by strong memory prices in the second quarter, price hikes across all high-bandwidth memory (HBM) products scheduled for supply next year, stronger justification for enhanced shareholder returns through the spread of long-term supply agreements, and continued supply shortages next year."
Separately, Mirae Asset Securities also raised its target price for Samsung Electronics to 400,000 won from 320,000 won, a 25% increase, in a report Tuesday. "We maintain the same stance on our earnings outlook as before, but have removed the valuation discount factors previously applied, as we detect a shift in the investor base," Mirae Asset Securities said.
The analysis suggests that earnings improvements and a share re-rating are likely to proceed simultaneously, driven by a combination of rising memory prices, HBM price hikes, and continued supply shortages. Analysts also advised that an overweight strategy on the memory sector remains valid.
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