Samsung Electronics

A mispriced vertically integrated firm is up for grabs

(005930 KS, SMSN LI)



WEALTH IDEA - Samsung Electronics 280322
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INVESTMENT HIGHLIGHT - BUY


When interest rates are rising, investors’ willingness to pay up for high-growth companies declines and they instead choose companies with steady earnings that trade at low multiples and are less sensitive to interest rate movements. Samsung Electronics is such a company. Samsung Electronics’ diverse set of business segments produces steady earnings growth. It trades at a modest 10x forward FY22 earnings.


ESSENTIALS 


  • Samsung Electronics divides itself into five business segments. All those business segments operate in highly competitive markets. Companies that are in tough businesses do not trade at high P/E multiples. However, Samsung has a couple of competitive advantages that justify a higher valuation. The most important may be Samsung’s size. Samsung is a leader in many of the businesses in which it operates. 


  • It is always hard for investors to get their heads around the large Korean diversified conglomerates known locally as chaebols. They often have a mix of businesses which offer little synergies. For example, Samsung is one of two companies capable of manufacturing the most high-end semiconductors for the likes of Apple (AAPL) and NVIDIA (NVDA). While at the same time, Samsung’s consumer electronics segment makes appliances. 


  • The two most important business segments for Samsung Electronics are semiconductors, and IT & mobile communications (cell phones/tablets). The semiconductor segment separated into two businesses – memory chip manufacturing and the foundry business.