S.Korea chip makers up anew on NAND memory hopes

S.Korea chip makers up anew on NAND memory hopes
Mon Mar 12, 2007 11:17 AM IST

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By Rafael Nam
SEOUL (Reuters) - South Korean chip makers including Samsung Electronics Co. Ltd. extended this month's gains on Monday as prices of NAND flash memory chips used in digital gadgets are expected to rebound, pulling up earnings.
Easing worries about the global economy, following well received jobs data in the United States and solid economic growth in Japan, also boosted the export-oriented sector.
Valuations are playing a role as well, after shares in South Korean chip makers had tumbled for several months on worries about falling prices of memory chips, which threatened to worsen first half earnings that are traditionally marked by weak demand.
"The bottom for memory chip prices is not too far away. Flash memory is close to hitting a bottom, although DRAM prices could continue on a downward trend," said Chung Chan-won, an analyst at Daewoo Securities.
"We do think the earnings trends in Korean chip makers is softening, but share prices are reflecting a hard landing scenario. They are quite low compared to their long-term earnings valuations," he added.
Samsung Electronics, the world's biggest maker of memory chips, rose as much as 2.6 percent. Shares were up 2.39 percent at 600,000 won as of 0438 GMT, marking its fifth day of gains. That compared with a 0.95 percent gain in the main index.
Hynix Semiconductor Inc. advanced 1.08 percent to 32,850 won, its third consecutive daily gain.
Analysts have cut earnings forecasts for Samsung Electronics and Hynix as NAND flash memory chip prices have fallen, while those for DRAM chips, used in computers, have peaked after gaining strongly through the end of last year.
Despite the estimate cuts, investors appear to be increasingly optimistic about the sector.
Goldman Sachs on Monday cut its 2007 earnings-per-share forecast for Samsung Electronics by 11 percent citing lower memory chip prices, but maintained its buy rating on the stock and said it could gain as much as 25 percent from current levels given its low valuations and cost reduction efforts.
The U.S. investment house said Samsung was trading at a price to book ratio of 1.75 times 2007 earnings, a measure some analysts prefer to determine a company's valuations, close to the chip maker's historic low of 1.5 times. Its five year trading range has been 1.5 times to 2.5 times.
Last week Merrill Lynch cut its target prices on South Korean chip makers Samsung and Hynix but reiterated its buy rating on both, saying the risk to flash memory chip prices would decrease in the second quarter, which would be followed by a sales recovery in the third quarter.
"We expect NAND to lead the recovery in 2H (second half) and growth in 2008, resulting from a superior pricing environment coupled with global capacity constraints to meet the demand from new applications," Merrill said in its report.
Some investors are banking on new applications to drive shares, with speculation last week that Apple Inc. may sell small computers powered by flash memory chips helping give a bounce to chip maker shares.
Samsung shares have gained 3.3 percent so far in March as of Friday, heading to its first monthly rise in four months. Hynix shares have gained 4.3 percent, en route to its first monthly rise in three months.