The GDR (Global Depository Receipt) of Samsung Electronics Co L (BMV: SMSNN) recorded a new 12-month high of $1061 in the last week of June. The stock is now consolidating at 1030 levels. On the basis of the impressive fiscal 2017 second-quarter outlook issued last week, and the memory chip’s ultra-super-cycle, we anticipate the stock to move up further in the days ahead.
The South Korean company issued an upbeat second-quarter outlook on Friday last week. Samsung stated that it expects Q2 2017 revenues of between 59 trillion Won and 61 trillion Won ($51.1 billion to $52.9 billion), versus Thomson Reuters consensus estimates of 59 trillion Won.
The midpoint of the Q2 outlook roughly corresponds to 18% y-o-y growth. The company also announced that it anticipates an operating profit in the range of 13.9 trillion Won to 14.1 trillion Won ($12 billion to $12.2 billion), compared with the Wall Street estimates of 13.1 trillion Won. The midpoint of the operating profit outlook translates to a 72% y-o-y growth. Samsung’s previous record operating profit of 10.16 trillion Won was reported in Q3 2013.
During the second quarter, Samsung’s chip-making unit is estimated to have generated an operating profit of about 7 trillion Won. Again, that would exceed the 6.31 trillion Won record operating profit reported in the previous quarter. The operating margin is expected to be 23.3% in Q2 2017, up 7.3% on a y-o-y basis.
Unarguably, the strong positive response for Galaxy S8 has contributed to the upbeat outlook. It is believed that Samsung has sold close to 20 million S8 smartphones so far and is aiming to sell another 40 million.
Samsung is also reaping rewards from a huge increase in demand for memory chips. The demand, referred to as the memory chip super cycle, is expected to last for several years when more and more companies start using cloud computing or venture into artificial intelligence.
The company also remains unchallenged in the field of OLED (organic light-emitting diode). Ironically, one of the major customers for those next-generation screens is its competitor Apple. According to HMC investment analyst Greg Roh, the DRAM prices would rise further this month. Roh expects Samsung to report an operating profit in excess of 15 trillion Won in the third-quarter. Thus, fundamentally, the stock is expected to record new highs in the weeks ahead.
After consolidating within a range of 1000 and 1025, the stock has started moving upwards. The money flow index is ascending. Furthermore, the stock is trading above its 50-day exponential moving average. Thus, a continuation of the uptrend is possible.
By investing in a call option, we hope to gain from the probable appreciation in the share price of Samsung. The call option or its equivalent contract, valid for a week, would be bought from one of our binary brokers when the stock trades at about $1040 in the LSE.
Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.
