Samsung Analysis

August 27, 2012

Samsung Electronics (005930 KS)

Company Update

US jury sides with Apple
WHAT’S THE STORY?

Event: A US jury on Aug 24 handed Apple a sweeping victory over Samsung Electronics (SEC)—in stark contrast to an earlier split ruling by a Korean court. Impact: The verdict implies that the handset industry will now compete more fiercely in design, as well as in technology, eroding the profitability of handset makers and parts suppliers. On the positive side, the battles should help Apple and SEC further consolidate their leadership. The USD1.05b in suggested damages for SEC to pay equate to 5% of our 2012 operating profit projection for the firm. Looking ahead, sales (including those of Galaxy S3) should be burdened by the risk of similar verdicts, but we foresee limited impact on earnings, as such risk will be shared by all smartphone manufacturers. SEC will likely suffer in the short term, but the ruling should push it to revamp its corporate culture, brand, and investment strategy. We therefore remain bullish on SEC, expecting it to weather the storm.
MS Hwang Analyst [e-mail] 852 3411 3719 Eric Yoo Research Associate [e-mail] 822 2020 7807

Action: We maintain BUY on SEC with an unchanged target price, though the shares are likely to pull back in the near term. While a reassessment of future earnings is difficult without details of the ruling and possible embargo, shares are unlikely to fall more than 10-15%, as we estimate that at their current price, the non-semiconductor portion of SEC’s business is valued at one standard deviation below its fair level based on the stock’s 10-year average P/E multiple.

 AT A GLANCE

THE QUICK VIEW

Target price
Current price
Bloomberg code Market cap Shares (float) 52-week high/low Average daily trading value (60-day) One-year performance Samsung Electronics (%) Vs Kospi (%pts)

KRW1,550,000(22%)
KRW1,275,000
005930.KS KRW205t/USD180.8b 147,299,337 (71.1%)

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