Samsung UP on issuing strong Q1-2017 earnings guidance

Amidst the corruption scandal, white goods and semiconductor chip manufacturer Samsung Electronics Co L (LSE: SMSN) issued a strong first-quarter 2017 earnings and revenue guidance on Friday last week. Ironically, since then, the stock has declined marginally to close at $923.50 yesterday. On the basis of the arguments provided below, we believe that the dip is temporary and the stock will appreciate in the near future.

South Korea-based Samsung, in a regulatory filing, stated that it expects fiscal 2017 first-quarter operating profit of about 9.9 trillion Korean won ($8.76 billion), up 48.2% from 6.7 trillion Korean won reported in the similar period last year, and higher than Thomson Reuters estimates of 9.4 trillion won.

It is the second highest operating profit posted by the company following the 10.1 trillion won reported in Q3-2013. Samsung also stated that its revenue would be almost flat at 50 trillion won ($44 billion) in Q1-2017. The company did not divulge segment wise performance details.

Samsung Mobile

Rising demand for memory chips and OLED displays mainly contributed to an increase in the Q1-2017 earnings. This was the case in the previous quarter as well. During the fourth-quarter, the memory chip business recorded 77% y-o-y increase in operating profit and accounted for about 47% of Samsung’s net profit in fiscal 2016. Market research firm IHS Markit indicated that Samsung was the leading player in both DRAM and NAND flash memory chip business in the previous quarter. Commenting on Samsung’s performance, Walter Coon, NAND director at IHS Markit stated that the demand and price is expected to remain strong in 2017 and this would enable Samsung to post a strong performance this year.

Beginning with a failed launch of exploding Galaxy Note 7 mobile, the company had faced several problems in the past one year. Even Samsung’s Vice Chairman Lee Jae-Yong was arrested for his alleged involvement in a 43.3 billion won ($38 million) bribery scandal that resulted in the impeachment of former President Park Geun-Hye. Now, the stupendous performance, analysts believe, would put to rest investors’ concerns.

The company unveiled the Galaxy S8 handset last week and is expected to be offered for sale from April 21st onwards. Analysts believe that the revenue from Galaxy S8 would enable Samsung to post a record profit in the second-quarter of 2017. Samsung is also planning to sell refurbished phones that were taken out of the market due to battery related problems. The launch of Galaxy S8 and strong demand for memory chips is expected to keep the stock fundamentally strong in the current quarter.

Technically, the stock is trading above the 50-day moving average of 880 and consolidating at 920 levels, as shown in the chart below. The stochastic RSI indicates an oversold scenario. So, we suspect accumulation is going on at the current levels.

A trader can bet on the uptrend by purchasing a high or above option from a binary broker’s portal. The trade can be established when the bid price of the stock is near $920 in the LSE. The trader should select a date around April 19th as the contract expiry date.