Investors loyal to poorly performing Samsung Electronics

[NEWS1]

Samsung Electronics is still the No. 1 choice for Korean retail investors despite the recent weakness of the stock.

"I believe in Samsung Electronics,” said one 70-year-old investor.

He started buying the company’s shares about 15 years ago and recently purchased an additional 100 million won ($87,100) worth. He now owns 1 billion won of the company’s shares and is sitting on a 700 percent gain.

“I recently bought another 20 million won of shares for my grandson who just entered elementary school," he said. “The price of Samsung Electronics shares will certainly rise in the future."

Korean retail investors purchased a net 24.01 trillion won of Samsung Electronics shares during the first half of the year, which makes it the most popular stock in terms of the volume of net purchases, according to the Financial Supervisory Service.

A total of 3.87 million retail investors held Samsung Electronics shares and they own about 9.5 percent of the company as of end of the first quarter of the year, the company said in a report.

The shares have been performing poorly in recent months. Since hitting a high of 91,000 won on Jan. 11, they have fallen by 14 percent. The shares have declined for four consecutive sessions since July 7, when the company announced expectation-beating second quarter profit, and closed at 79,400 won on Friday.

This means people who bought Samsung Electronics earlier the year have been losing money.

The decline is mainly due to the institutions and foreign investors who have been selling shares in bulk.

During the first half, institutions sold 12.31 trillion won of Samsung shares, while foreign investors sold 11.32 trillion won, according to Financial Supervisory Service.

On July 8, when the price fell below 80,000 won, retail investors bought 31.28 billion won of the shares, while institutions and foreign investors offloaded 18.05 billion won and 13.87 billion won of the shares respectively.

The next day, institutions and foreign investors continued their selling spree, but retail investors purchased net 54.24 billion won of the shares.

Individual investors tend to consider Samsung shares as safe assets. The market cap is about 477 trillion won, about 20 percent of all Kospi stocks.

High dividends are also a factor.

“Last year I invested roughly 30 million won and received about 1 million won of dividends,” said a 38-year-old woman who lives in Anyang, Gyeonggi. “It seems like Samsung Electronics shares are a better way to make money than keeping them in the bank, which is paying about 1 percent interest.”

“I will keep holding my shares until the price reaches 100,000 won per share.”

According to market tracker FnGuide, the average target price for Samsung Electronics from 21 brokerage houses is 102,524 won as of July 8.

“Operating profit will increase further due to the rising DRAM and NAND flash memory prices as well as on the strong performance of organic light-emitting diodes,” said Kim Uno, market analyst at IBK Investment & Securities.

Kim called a target price of 110,000 won, up 38 percent of the current price.

Analyst Kim Dong-won from KB Securities announced a target price of 105,000 won, adding that “the operating profit of Samsung Electronics in the third quarter is expected to hit 15 trillion won, the highest in three years.”

Some remain skeptical about the outlook.

“The share price has not risen even though the company’s performances surpassed market expectations for nine consecutive quarters,” said Lee Seung-woo, an analyst at Eugene Investment & Securities. “The price will possibly increase when the company succeeds in showing some results like from the foundry sector or through mergers and acquisitions.”

Some also argue that the decreasing volume of smartphone shipments in China will likely have huge impact on the semiconductor industry.

The volume of smartphone shipments in China in May declined 16 percent from a month earlier. It’s down 31 percent compared to a year earlier, according to data from China Academy of Information and Communications Technology.

China‘s smartphone market is about 25 percent of the world’s total.

BY YEOM JI-HYEON, SARAH CHEA [chea.sarah@joongang.co.kr]