The slump in Samsung Electronics Co that wiped out US$28 billion of market value in six weeks will deepen as Apple Inc and Chinese rivals take market share in handsets, according to the stock’s most-accurate forecaster.
Shares of Samsung fell 13 percent since Nov. 29, losing more market capitalization than any other company worldwide. The stock will sink another 11 percent, said Adnaan Ahmad, an analyst at Berenberg in London, whose recommendations during the past 12 months produced the best return among forecasters tracked by Bloomberg.
Samsung, the world’s biggest smartphone maker, posted its first profit decline in nine quarters in the final three months of last year, amid growing competition from Apple’s iPhones and budget devices from Chinese producers. While bulls say the stock will rally after its valuation fell to the lowest level in at least three years versus global peers, Ahmad says investors will sell as operating profit margins at Samsung’s mobile business shrink.
“Selling is totally justified because the market now understands that the margin profile will change drastically,” Ahmad, who has covered technology companies for 16 years at firms including Merrill Lynch & Co and Morgan Stanley, said in a telephone interview on Jan. 7. “Samsung is in a very precarious position in the next 12 to 18 months.”
Ahmad, who cut Samsung shares to “sell” from “buy” as they traded within 2 percent of a record high in March last year, has been out in front of a bearish shift in sentiment toward South Korea’s largest company by market value. The average price target for Samsung shares tracked by Bloomberg has dropped about 12 percent since June last year, including a 4 percent decline in the past six weeks.
Most analysts still do not recommend selling. Ahmad has one of only two such ratings on the stock, among 48 “buy” calls and three “hold” ratings.
The consensus recommendation tracked by Bloomberg is the highest among the world’s 50 largest companies by market value and Samsung’s mean price target is 37 percent above its closing level of 1,295,000 won on Monday.
Samsung shares rose 1.4 percent to their highest level since Dec. 30 at the close in Seoul yesterday. The benchmark KOSPI slipped 0.2 percent.
Samsung plans to maintain its focus on managing its supply chain while delivering a “full line-up” of smartphones with varying levels of price and features, the company said in an e-mailed statement to Bloomberg News on Monday.
The stock is “very cheap” after its retreat, said Khiem Do, the Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management, which oversees about US$60 billion, in an interview in Seoul on Jan. 10.
Samsung also has a track record of introducing “smart” new products across its businesses, which include displays and semiconductors, Do said.
Samsung has the biggest weighting in the benchmark KOSPI, which has slipped 3.1 percent this year.
The South Korean won has slipped 0.7 percent against the US dollar, while the yield on the government’s 10 year notes has increased four basis points to 3.64 percent.
“Improved global demand is a strong driver for the success of Korea’s exporters and has contributed to our more positive view on the country,” Andrew Swan, the Hong Kong-based head of Asian equities at BlackRock Inc said in an e-mail response on Jan. 6. He did not mention specific companies.
Samsung’s smartphone business will remain a drag on the stock, Ahmad said. Margins at the unit, which account for about 65 percent of operating profit, will probably drop to 13 percent next year from about 18 percent in the third quarter, he wrote in a Jan. 7 report.
The company, which has a 35 percent share of global smartphone sales, is getting squeezed by a “saturated” market for high-end handsets and smaller profits for cheaper models, Ahmad said.
Samsung also faces a new challenge in China after Apple struck a deal last month to sell the iPhone through China Mobile Ltd (中國移動), which had 763 million users at the end of November last year.
Profit margins will narrow as Samsung seeks to lure customers by packing its smartphone with features that add to production costs, Ahmad said.
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