Dip Buyers Shun Samsung Shares Despite Record Discount to Peers

(Bloomberg) -- Samsung Electronics Co. is not what it used to be.

The company was known as a cyclical chip stock that attracted dip-buyers whenever it looked cheap. That’s no longer the case.

After losing one-third of their value in three months, Samsung shares are trading below 1 time book value, a record low relative to major Asian peers in data going back to late 2009. That’s not enough to lure investors.

The long-time memory chip leader is facing a potential crisis as it struggles to break through the high-end artificial-intelligence semiconductor race while a rise of Chinese rivals threatens its mid-end chip space. Investors and analysts have started to question something they never had before: Samsung’s competitiveness.

Read: Samsung Makes Rare Apology After Results Sag Despite AI Boom

“There are way too many uncertainties,” said Jinho Park, head of equity investment at NH-Amundi Asset Management Co., adding that Samsung shares would rally if investors viewed it as well-placed among peers. “At the end of the day, it’s more important whether the company is competitive or not.”

On Tuesday, Samsung issued a rare apology to investors for posting worse-than-estimated preliminary results, citing that it’s grappling with delays in delivering of a key type of chip used at Nvidia Corp. for training AI. That’s allowed SK Hynix Inc. to dominate the high-bandwidth memory arena, just as Samsung has made little progress against Taiwan Semiconductor Manufacturing Co. in the outsourced production of custom-made chips.

“Samsung’s plan in its last earnings call has become an unfulfilled promise, and the gap in market cap with TSMC has only widened,” Lee Seung-woo, an analyst at Eugene Investment & Securities Co., wrote in a note Thursday. “This raises the question of whether the one-off non-memory factors that weighed on the results were truly one-off,” he added, referring to the hit from performance bonuses.

Goldman Sachs Group Inc. is among those that cut earnings estimates. It lowered its stock-price target by 9.5% to reflect worse projections for DRAM and NAND chip shipments as well as for margins in the memory and contract chipmaking businesses. The firm sees the likelihood of Samsung meeting the guidance it gave during its July earnings call as low, analysts led by Giuni Lee wrote in a note.

While Morgan Stanley expects limited earnings gains given that quarterly DRAM contract prices are beginning to plateau, it does see a case for buying the dip. In the past, purchasing shares when they traded below book value returned more than 40% in six months most of the time, according to analysts led by Shawn Kim.

Yet for Neil Campling, founding partner at Chameleon Global Capital, it’s less about these preliminary results and more about the company’s missteps.

“Samsung pain is Hynix’s gain,” he wrote on platform Smartkarma, adding that SK Hynix is powering ahead in the lucrative HBM arena, securing Nvidia 2025 allocations.