Estimates of Samsung’s profit shrink

Shares in Samsung Electronics, the world’s largest smartphone maker, fell to the lowest level in more than four months after Morgan Stanley became the second broker in a week to cut profit estimates, citing weaker handset demand.

Shares in Samsung declined for a fourth day, dropping 2.5 percent to close at 1,389,000 won ($1,223.70), the lowest since Jan. 28. Morgan Stanley cut its earnings estimates for Samsung this year by 1.6 percent as it lowered sales expectations for the flagship Galaxy S4 handset to 61 million units from 71 million, analysts led by Shawn Kim said in a report Monday.

JPMorgan Chase analysts cut their profit estimates June 6, also citing slowing demand for Samsung’s top smartphone.

“Compared to the S3, the S4 had stronger momentum in the first quarter of its launch,” said JPMorgan analyst J.J. Park. “But the following quarter’s shipments are expected to be disappointing and its peak-quarter number seems way below our previous estimates.” JPMorgan cut its share-price estimate for Samsung by 9.5 percent to 1.9 million won and lowered its 2013 earnings estimates by 9 percent.

“Concerns have been raised in the market over the sales of its flagship smartphone, the Galaxy S4,” said Kim Jae-dong, a fund manager at Baring Asset Management Korea. “Many investors seem to be opting to reduce their portion of Samsung shares for the time being.”

Samsung sold 10 million Galaxy S4 handsets within a month of its release, it said May 23. Samsung shipped 69.4 million smartphones in the January-March quarter of 2013 before the release of the S4, according to data released by Strategy Analytics.

Apple shipped 37.4 million over the same period.

The Korean company’s market share increased to 33.1 percent at the end of March from 28.9 percent a year earlier, while Apple’s decreased to 17.9 percent from 22.8 percent, Strategy Analytics said.

“Galaxy S4 sell-through is running lower at Samsung, which has recently reduced monthly orders of components from its suppliers,” Morgan Stanley’s Kim wrote. “Sell-through demand appears lower than our previous estimate.”

Meanwhile Fitch Ratings last week announced a report stating that it will unlikely upgrade Samsung’s credit rating despites the Korean company’s impressive performance. It said the company has yet to prove itself a true innovator.

BY LEE HO-JEONG, BLOOMBERG [ojlee82@joongang.co.kr]