Sat, Dec 02, 2017 - Page 12 News List

Morgan Stanley defends downgrades of Asia tech titans

Bloomberg

Morgan Stanley has responded to what it terms “strong” pushback it received from some investors after recent downgrades to Samsung Electronics Co and Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), as the shares of both technology firms slumped this week.

Analyst Shawn Kim, who lowered Samsung from “overweight” to “equal weight” on Wednesday last week while slashing the price target to 2.8 million won (US$2,577), has had to defend his call against a wide body of investors about the South Korean tech giant.

Samsung fell 5.1 percent the day of Morgan Stanley’s downgrade.

Here is a breakdown of the arguments, and Kim’s rebuttals:

“This time is different for memory chips.”

While computer chips will benefit from the long-term secular growth trend, the vast majority of global demand remains cyclical — mobile, personal computers and consumers, and history tends to repeat itself.

“Everyone knows NAND prices will fall.”

While Samsung’s flash memory business is often dismissed due to its size, it still accounts for one-fifth of the company’s profits.

Kim said revenue is more important for the chip cycle as it shows how much the market is paying for the product, and their analysis shows sales multiples are at a decade high.

In a separate report on Thursday, analysts Charlie Chan (詹家鴻) and Daniel Yen (顏志天) published their responses to their decision to lower their recommendation of TSMC from “overweight” to “equal weight” on Tuesday last week.

The stock plunged 5.33 percent this week after the downgrade.

The pair said their decision was based on “rich” valuations, while they also lowered their revenue forecasts for next year and 2019 amid shrinking chip sizes, slowing demand and rising competition.

Samsung is up 41 percent this year, touching a record on Nov. 1 to drive gains in South Korea’s benchmark KOSPI. TSMC has rallied 25 percent in the same period, achieving a record on Nov. 7.

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