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Removing the valuation discount

Valuation discount factors fading

We raise our target price for Samsung Electronics (SEC) to W400,000 (from W320,000). While our earnings outlook remains unchanged, we are seeing signs of a shift in the investor base, warranting the removal of the valuation discount we previously applied to the stock. We now value the foundry business at W138tr, as we changed our valuation basis from 12-month forward EBITDA to 2027F EBITDA due to improved medium/long-term demand visibility.

SEC’s foundry business is expected to mass produce 4nm Groq LPUs in 2H26, while mass production of 2nm AI chips for Tesla (worth approximately W23tr) is expected to start in 2H27. Through these two major order wins, we believe SEC has validated its mass production capabilities for data center-grade accelerators based on advanced nodes (4nm and below). The company has also successfully launched its 4nm base die for HBM4.

During its recent earnings call, SEC stated that it is currently in discussions with multiple large customers regarding 2nm orders and expects tangible progress soon. In addition, overseas media reports continue to raise the possibility of Apple and Qualcomm adopting SEC’s foundry services. With Qualcomm planning to launch data center chips within the year, SEC’s full-stack model―integrating advanced-node foundry operations and memory―represents an attractive option.

HBM market conditions are also becoming increasingly favorable. Google’s 8t TPU features 216GB of HBM3E―a 13% increase over the previous generation―and delivers roughly 3x higher compute performance, while its 8i TPU increases HBM3E capacity by 50% to 288GB and achieves approximately 80% greater cost efficiency. Meanwhile, Amazon’s Trainium 3 (launched earlier this year) features 144GB of HBM3E, up 50% from the previous generation, with total purchase commitments exceeding US$225bn.

This expansion of the HBM3E buyer pool (beyond Nvidia) is encouraging, as it should help strengthen the pricing power of suppliers. With HBM4 shipments set to begin in 2H26, we forecast SEC’s HBM revenue to reach W33.8tr (+246% YoY) in 2026 and W63.5tr (+W30tr YoY) in 2027 (2027 HBM ASP growth projected at +25.7%).

For 2Q26, we forecast operating profit at W74.5tr (+30.2% QoQ), supported by DRAM and NAND ASP growth of +23% and +30%, respectively, and bit growth of +7% and +3%, respectively. We project full-year operating profit at W329tr for 2026 and W445tr for 2027. We also expect the company to meet its minimum dividend payout target of 25% in 2026, implying a dividend yield of 3.9% (5.5% for preferred shares).