With Memory ASP Erosion in 2H Mostly Priced In, Samsung and SK Hynix Are Undervalued

We trim our fair value estimates for two memory suppliers, Samsung Electronics and SK Hynix, based on lower memory shipment assumptions. At the beginning of this year, we had expected tight DRAM supply would continue throughout 2022 and then fall to oversupply for mid-2023 and full-year 2024. However, in our updated forecasts, we expect DRAM oversupply in the second half of this year, coming in a few quarters earlier than we had anticipated, due to the economic slowdown. As a result, DRAM price erosion should accelerate in the next few months, which is the reason we cut our 2022 operating margin assumptions for Samsung and SK Hynix from 20.3% and 32.1% to 17.5% and 26.1%, respectively. Meanwhile, the impact on our midterm forecasts is limited, as we expect memory suppliers to cut capital expenditure and supply to retighten in late 2023, which is also a few quarters earlier than our previous forecasts.