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Structurally higher earnings likely to be confirmed

1Q26 results likely to highlight operating leverage

We reiterate our Buy rating and target price of W300,000 on Samsung Electronics (SEC). Despite ongoing share price volatility, we maintain a constructive medium/long-term view on the stock.

Ahead of the release of preliminary 1Q26 results on Apr. 7, we raise our operating profit estimate by 13.2% to W46.8tr (W42.6tr for the DS division and W3.6tr for the DX division). We revised up our DRAM blended ASP growth estimate by 8.6%p to +64% (from +55.4%) and lowered our cash cost estimates, resulting in a higher DRAM OP margin estimate of 73% (+16%p QoQ). Given capacity/inventory constraints and the fact that rising memory contract prices have already been reflected in our estimates, the likelihood of bit growth and ASP surpassing our forecasts appears limited.

Instead, the key focus will likely be the extent to which SEC was able to maximize operating leverage through advanced node yield stabilization and product mix improvements. A combination of low bit growth and high ASP would imply that customers were unable to secure sufficient volumes despite elevated prices. Looking ahead to 2Q26, we expect shipment growth and price increases to occur simultaneously, supporting continued earnings growth.

Long-term contracts to support ROE expansion and P/B re-rating

According to recent media reports, memory suppliers―including SEC―are entering into long-term supply agreements (three years or longer) with big tech customers. These customers appear to be prioritizing securing supply volumes over price negotiations, typically paying a certain portion upfront and then renegotiating prices on a quarterly basis to keep the advance payments aligned with contract terms. These contracts are also believed to feature upper and lower price limits, with volumes subject to adjustment depending on whether market prices move outside the preset range.

Importantly, such long-term agreements appear to be gaining traction across the industry. As the share of customers locked into long-term contracts increases, the pool of buyers over which suppliers compete for market share is likely to shrink, easing competitive pressures.

Some profit-taking has emerged on concerns that memory price momentum may moderate. However, at this stage, the key variable is not the continuation of price increases but rather whether prices can be sustained within a relatively stable range. Even if long-term agreement pricing simply holds at current levels, ROE of at least 30% should be sustainable, which we believe would support a higher P/B valuation range.