Samsung Galaxy Note 7 to boost parts affiliates
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Morgan Stanley, UBS say Note 7 to be profit booster
By Kim Yoo-chul, Lee Min-hyung
Samsung Electronics’ latest phablet ― Galaxy Note 7 (Note 7) ― is expected to lift profits for Samsung’s parts affiliates as the world’s biggest smartphone manufacturer remained confident of solid sales of the new Note.
“Initial response about the Note 7 from Samsung’s local and overseas carrier partners was very favorable. The sale of the new Note will exceed that of previous models,” a Samsung executive told The Korea Times, Tuesday.
The executive declined to specify how many orders it has so far received from mobile carriers in markets in which the Note 7 will be available.
But he said Samsung’s handset facilities are “fully operational” to ship the Notes to carriers as scheduled.
Samsung has chosen New York City in an attempt to directly confront Apple and take an early lead in the smarpthone competition ahead of Apple’s new iPhone, which will be released in the latter half of this year.
The point is that while LG Electronics is disappointed at sluggish mobile sales, Samsung Electronics has clearly staged a strong turnaround during the second quarter this year.
There’s no question that Samsung’s performance in the June quarter was a testament to its earnings renaissance.
Samsung’s mobile business is making solid earnings for Samsung’s component business and the group’s parts-related affiliates as the company has “vertically-integrated” its supply chain system from parts to sets.
“We maintain our 70,000-won per share target on Samsung Electro-Mechanics (Samsung Electro) because Samsung Electro is responsible for offering some improved new features on the Note 7 such as water-resistance and eye-scanning,” said Samsung Securities analyst Lee Jong-wook in a report to clients.
Lee said Samsung’s shift to focus more on components such the size of displays, camera functions and storage capacity will also keep Samsung Electro’s factories running.
“Note 7 made little overhaul in its surface; however, it made some meaningful changes in components with Samsung Electro leading the way,” according to the analyst.
Hana Financial’s Park Joon-hyung said the local brokerage revised up its target for Samsung Electro to 63,500 won per share from 61,000 won thanks to the better-than-expected forecast of Note 7 sales.
“We expect Samsung Electro to report 55.4 billion won as its third quarter operating profit, up 263 percent from the previous quarter. This is due to increasing orders for the Note 7 from major carriers specifically those in China,” said Park.
With Samsung Electro, Samsung SDI, the battery affiliate of Samsung, is also expected to benefit from the Note 7 given Samsung SDI’s greater exposure for the supplement of its batteries to the Note 7, they said.
Brighter second half outlook
More importantly, Samsung Electronics itself will benefit most from the release of the Note 7 at a time when the company’s Galaxy S7 smartphone has already logged good early shipments, boosting Samsung Electronics stocks to an increase of 19 percent of its price since the release of the Galaxy S7 smarpthone.
“Samsung Electronics’ stock could climb higher,” Morgan Stanley analyst Shawn Kim said. “While smartphone profits could dip in the September quarter as Galaxy S7 shipments settle down and marketing expenses rise, the launch of the Note 7 is expected to cushion the fall.”
Morgan Stanley expects Samsung Electronics’ operating profit to rise as much as 18 percent in the second half from the first half.
“We have an overweight rating on the stock with a 1,800,000 won per share target price,” Kim said.
Bernstein Research’s senior analyst Mark C. Newman said the Note 7 will help increase its manufacturing efficiency and the company continues the margin improvement trend.
UBS analyst Nicolas Gaudois focused on Samsung’s plan to aggressively promote curved OLED screens because the production yields ― defect rates ― of curved OLED screens by Samsung reached a “stable level.”
UBS has a buy rating on the stock with a 1,700,000 won a share target price.
“Samsung’s OLED prowess has given the company a head start in moving towards foldable handsets ― seen as the next disruptor product in the smartphone market ― with the flexible display of its edge models,” said Gaudois.