Samsung Electronics shares 'deeply undervalued' at current levels, analyst says; target price of 460,000 won set for next year

With Samsung Electronics shares trading around 270,000 won ($199), analysts say the stock is significantly undervalued. Continued memory chip demand next year is expected to push the share price to 460,000 won, surpassing the company's all-time intraday high of 374,500 won set on June 19 this year.

IBK Investment Securities said Friday that if the memory chip supply shortage persists, Samsung Electronics' profitability would hold at current levels while earnings grow steadily. "The current share price is in a markedly undervalued phase," the brokerage said.

Kim Un-ho, an analyst at IBK Investment Securities, said Samsung Electronics' stable growth trajectory supports the case for undervaluation, maintaining a "buy" rating and a target price of 460,000 won.

However, the brokerage expects Samsung Electronics' third-quarter earnings to fall short of earlier forecasts.

Sales are projected at 195.2 trillion won, up 13.8 percent quarter-on-quarter, while operating profit is forecast at 101.7 trillion won, a 13.6 percent increase.

For the DS division, IBK projected sales of 149.9 trillion won and operating profit of 101.8 trillion won. The display division is expected to post sales of 8.8 trillion won and operating profit of 900 billion won.

The MX and network business is forecast to generate sales of 34.3 trillion won with an operating loss of around 1.1 trillion won, while the VD and home appliance division is also expected to see its operating loss widen.

"The operating profit margin is forecast to slip 0.1 percentage point quarter-on-quarter to 52.1 percent," Kim said. He added that the won-dollar exchange rate was a key variable and that some performance bonuses deferred from the second quarter are expected to be reflected in the third.

The analyst also identified Samsung Electronics' shareholder return policy as a positive driver of future share price gains.

"The scale of share buybacks may not be large, but the dividend-based shareholder return will likely be the largest in history — comparable to leading global IT companies," Kim said. "No memory chip maker has ever returned more than 100 trillion won to shareholders, so how it affects the share price will be a key point to watch."

He added that while the buybacks would not significantly boost earnings per share, a stable and sustained shareholder return program would give the stock a basis to be valued at a higher level.