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Valuation gap set to narrow

Structural premium factors remain intact

We raise our target price for Samsung Electronics (SEC) to W550,000 (from W480,000). While our earnings forecasts remain unchanged, we revised up our 12-month forward target EV/EBITDA for the memory business to 7x (from 6x), reflecting the uptrend in multiples across the global memory sector. Our new target multiple is in line with the average multiple of global peers Micron and Kioxia (based on their current prices).

The stock is currently trading at a 12-month forward P/B of 2.3x and P/E of 5.7x, well below the peer average multiples (6.2x and 10.1x, respectively). Most memory stocks are currently rising in tandem, causing SEC’s valuation gap to persist. However, we expect its valuation to gradually converge toward the upper end of peer levels as the market increasingly prices companies based on intrinsic value.

In fact, we believe SEC deserves to trade at a premium, given that: 1) it has the largest production capacity in the industry (with DRAM and NAND market shares of 33% and 26%, respectively), allowing it to benefit the most from operating leverage amid the current super-cycle; 2) it has secured both competitive performance and stable yields for next-generation products such as HBM4 and SOCAMM2; and 3) its vertically integrated structure spanning DRAM, NAND flash, and foundry operations enables full internalization of key products such as enterprise SSDs and HBM.

Market focus to shift to 2027F valuation

As big tech companies increasingly disclose tangible performance indicators for their AI businesses, data center order backlog growth has begun to outpace capex expansion. Against this backdrop, long-term memory supply agreements aimed at ensuring stable capex execution are gaining traction. Recently, Sandisk secured a US$42bn backlog for its data center business―equivalent to 28x its quarterly data center revenue―along with prepayments covering roughly 25% of that value.

We expect both the DRAM and NAND markets to remain in undersupply through 2028, supporting structurally higher pricing. Spot prices, a key gauge of memory demand strength, also appear to be rebounding after a brief correction. For 2Q26, 2026, and 2027, we project DRAM ASP growth at +41%, +260%, and +14%, respectively, and NAND ASP growth at +45%, +235%, and +16%, respectively.

Our operating profit forecasts for 2Q26, 2026, and 2027 stand at W89tr, W371tr, and W500tr, respectively. Given solid projected earnings growth next year, SEC’s 2027F multiples look unjustifiably low. As we move into 2H26, market expectations should recalibrate around next year’s outlook. Furthermore, anticipation surrounding the third year of the company’s shareholder return program is expected to build toward year-end.