The question of where the bottom lies has once again come to dominate the market. As South Korean semiconductor shares have tumbled in the wake of the "blue tsunami" election result, investors have been focused on finding reasons for the decline — but some analysts say it is now time to look at valuations rather than headlines.
Hanwha Investment & Securities said in a report Friday that while the catalysts and duration of past downturns have differed, Samsung Electronics' share price has consistently bottomed out within a similar valuation range — and the stock has already entered that zone.
The brokerage recommended that investors begin buying Samsung Electronics in stages starting around 178,000 won ($133), which corresponds to a 12-month forward price-to-book ratio (12MF PBR) of 1.03 times. The reference points are the three previous cycle lows: 0.95 times in January 2019, 1.03 times in September 2022, and 0.83 times in November 2024.
The headwinds driving each downturn were different. Concerns about a peak in the memory chip supercycle weighed on the stock in late 2017; the Federal Reserve's aggressive tightening and a slump in global IT demand did so in 2021; and in 2024, slowing demand for commodity memory chips combined with uncertainty over the US presidential election and tariff policy.
The length of each downturn also varied — roughly 14 months from November 2017 to January 2019, about 20 months from January 2021 to September 2022, and around four months from July to November 2024. Despite the different catalysts and durations, the valuation at each trough formed within a similar range.
Applying the average trough PBR of 0.94 times across the three cycles to Hanwha Investment's estimated 12-month forward book value per share of 173,079 won — the consensus estimate is 171,196 won — yields a figure of 163,000 won. The data suggest the stock could fall to that level, though pinpointing the exact bottom remains difficult.
That is why Hanwha Investment stopped short of declaring a specific floor and instead recommended buying in tranches starting in the 170,000–180,000 won range, which corresponds to roughly 1 times book value — the average PBR of the 2019 and 2022 lows at 0.99 times.
The brokerage assigned a low probability to the stock revisiting the November 2024 trough of 0.83 times, or 144,000 won. At that point, Samsung Electronics was lagging behind rivals in expanding HBM supply, and investors were focused on concerns about product certification and market share with major AI accelerator customers. Doubts that Samsung might not fully benefit from a memory market recovery — even if one materialized — acted as a company-specific discount factor.
The situation is different now, the report said, as expectations are building for Samsung to expand HBM supply and improve product competitiveness, making a return to such an extreme trough multiple very unlikely.
The report also noted that strong earnings do not guarantee share price gains. After Samsung Electronics peaked in November 2017, its operating profit still rose 9.8 percent year-on-year to 58.9 trillion won in 2018. After the January 2021 peak, operating profit climbed 43.5 percent to 51.6 trillion won that year. And after the July 2024 peak, operating profit for 2025 increased 33.2 percent to 43.6 trillion won.
In all three cases, annual earnings improved even after the share price had peaked. That is because share prices reflect changes in future earnings growth and market expectations ahead of current results.
The timing of recoveries was also disconnected from the resolution of negative catalysts. When the stock bottomed in early 2019, the US-China trade dispute was still ongoing and memory chip prices and earnings continued to deteriorate. At the September 2022 trough, the Fed had not yet finished raising interest rates and weak IT demand and memory inventory adjustments persisted. Yet the share price turned higher first. Buying opportunities opened not when the bad news disappeared, but when prices had fallen low enough to reflect it.
Investors who bought Samsung Electronics at each of the three historical troughs would have had maximum upside of 163 percent, 71 percent and 651 percent, respectively, through the subsequent cycle peak. While these figures are confirmed only in hindsight, they illustrate the substantial return opportunities available to investors willing to take on risk at historically undervalued levels.
"It is difficult to say with certainty that the uncertainty surrounding the semiconductor sector will be resolved in the short term," said Park Jun-young, a researcher at Hanwha Investment & Securities. "But historically, share price bottoms have not coincided with the moment bad news was resolved or earnings improvement was confirmed."
Park added that investors should "decide at what price to take on risk based on historical valuations, rather than delaying purchases simply because uncertainty exists."
"What is clear, looking at past data, is that the share price has now reached near a historical bottom," Park said. "This is the time to determine a price at which to start buying based on valuation — not to keep searching for reasons why the stock is falling."
th5@heraldcorp.com
