Beruflich Dokumente
Kultur Dokumente
South Korea
Marcus Shin
+82(2)3788-1154 marcus.shin@gs.com
Goldman Sachs (Asia) L.L.C., Seoul Branch
Giuni Lee
+82(2)3788-1177 giuni.lee@gs.com
Goldman Sachs (Asia) L.L.C., Seoul Branch
EPS (W)
EPS growth (%)
EPS (diluted) (W)
EPS (basic pre-ex) (W)
P/E (X)
P/B (X)
EV/EBITDA (X)
Dividend yield (%)
ROE (%)
CROCI (%)
Current
1,285,000
1,300,000
187,342.4 / 162,032.9
49.5
12/15
128,228
(16.7)
128,228
128,228
10.1
1.1
3.0
1.6
11.2
18.1
12/16E
142,590
11.2
142,590
142,590
9.0
1.0
2.5
1.9
11.2
15.2
12/17E
138,943
(2.6)
138,943
138,943
9.2
0.9
2.3
2.2
10.3
13.5
12/18E
141,079
1.5
141,079
141,079
9.1
0.9
2.1
2.3
9.7
12.8
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision. For Reg AC certification and other
important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by
non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
Table of contents
Our thesis in six charts
11
19
23
26
36
37
42
49
Hardware-as-a-platform scenario
53
54
63
72
75
89
90
91
99
111
112
115
120
Appendices
125
Disclosure Appendix
144
The prices in the body of this report are as of the market close of April 6, 2016, unless mentioned otherwise.
$36bn
$170bn
A QUANTUMM JUMP
7th
42nd
out of
9
minutes
A FAST-FOLLOWER IN SOFTWARE?
3
years
SHRINKING ON CONVERGENCE
400mn
65%
HARDWARE HEAVY
150mn
$13bn
SOFTWARE POTENTIAL
40k
vs.
20k
1,000
80%
95%
Source: Datastream, Company data, Interbrand, Strategy Analytics, Digitaltimes, IHS, Gartner, Goldman Sachs Global Investment Research.
100%
30
90%
25
80%
Samsung
70%
Apple
60%
ContentProvider
50%
Others
AMOLED
SystemLSI
NAND
20
Appliances
TV
Mobileservice
15
DRAM
AMOLED
LCD
EntertainmentPlatform
40%
Electroniccomponents
30%
EMS/OEM/ODM
Setmaker
20%
10
SystemLSI
NAND
NAND
Handset
DRAM
DRAM
Semiexcl.memory
10%
AMOLED
SystemLSI
Handset
Handset
0%
5
2015EBIT
2025EEBIT
(W)
130%
250,000
8%
12%
110%
200,000
150,000
100,000
90%
0%
70%
36%
50%
9%
30%
50,000
5%
29%
27%
13%
72%
48%
41%
10%
8%
10%
110%
18%
30%
30%
2015
EPS(basecase)
EPS(bullcase)
EPS(bearcase)
Semiconductor
2025E:Basecase 2025E:Bullcase
DisplayPanel
Handset
2025E:Bearcase
Mobileservice
CE
Others
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Apple
CiscoSystems
Intel
Microsoft
Qualcomm
TSMC
Samsung
Others
Source: Datastream.
Source: Datastream.
Exhibit 10: Global hardware market has entered the exgrowth phase
$mn
25%
900,000
OLEDTV
800,000
Tablet
Tablet
15%
Smartphone
10%
700,000
600,000
Cellphone
Smartphone
PC
Feature phone
500,000
LCDTV
400,000
Gameconsole
PC
300,000
DVC
Globalhardwaremarkethas
enteredexgrowthphase
withdeceleratinggrowth
20%
5%
0%
5%
10%
15%
DVD/BD
200,000
DSC
LCDTV
100,000
CRTTV
Hardwaremarketgrowth
2015
2016E
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
300
Others
250
Appliances
200
TV
Mobileservice
150
Tablet
100
PC
50
Handset
LCD
AMOLED
2025E
2024E
2023E
2022E
2021E
2020E
2019E
2018E
2017E
2016E
2015
2014
2013
2012
2011
2010
50
SystemLSI
40
Others
35
Appliances
30
TV
25
Mobileservice
20
Tablet
15
PC
10
Handset
LCD
AMOLED
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
(Wtn)
SystemLSI
To strengthen its software competency and establish its own ecosystem such as Apple,
but we think that this could be tough as Android and iOS are likely to maintain their
dominant positions while we see limited expansion for SECs own OS, Tizen.
2.
To focus on new growth opportunities for its hardware business. However, we view
that the growth curve for new hardware products will remain gradual and the
addressable market size will be smaller compared with smartphones.
3.
To tap additional services, rather than hardware itself, to generate profits. In what we
term as hardware-as-a-platform business model scenario, we think SEC could focus
on maximizing hardware market share via lower pricing and increasing volume
shipment. In light of rising market share at the expense of lower hardware profitability,
we believe it could potentially generate additional earnings streams from various
services such as mobile payment and mobile commerce.
Exhibit 13: A series of launches and terminations of SECs software service and OS
Started integrated
SamsungHub
serviceinGS4
Contents and
softwares
Discontinued
SamsungBooks
andSamsung
Video
ChatON
introducedatIFA
2011
Mobile
messenger
OSfor
smartphones
Milk Music,a
streamingradio
service,is
launched
BadaOSofficially
announced
FirstBadaOS
basedphone
released
October
2009
April
2010
ChatON service
discontinued
worldwide
Announced
intentiontomerge
BadawithTizen
Badadevelopment
discontinued
June
2012
Feb.
2013
Sep.
2011
April
2013
FirstTizenbased
phone(SamsungZ)
wasreleasedin
Russia
March
2014
June
2014
SamsungPay
launched inthe
UnitedStates
SamsungPay
launchedinKorea
Launched
Socializer
Messengerapp
ReleasedTizen
basedSamsungZ1
intheIndian
market
Nov.
2014
January
2015
March
2015
Discontinued
SamsungMusic;To
focusonMilk
Music
ReleasedTizen
basedSamsungZ3
intheIndian
market
August
2015
Sep.
2015
Sep.
2015
October
2015
October
2015
Hardware-as-a-platform scenario
Our Hardware-as-a-platform business model scenario can be summarized in three steps:
(1) Polarizing its smartphone line-up to high-end and low-end; (2) Maximizing hardware
market share via aggressive pricing strategy in the low-end segment while maintaining
brand value and pricing in the high-end segment; (3) Creating additional earnings from
various mobile services including mobile payment, m-commerce, O2O, and music
streaming in collaboration with well-established partners via strategic alliances or
acquisitions. As per our estimates, SEC could potentially generate revenue/EBIT of
W18tn/W10tn from mobile services including mobile payment and m-commerce by 2025E.
(mnunits)
200
150
100
50
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
Desktop
NotebookPC
Tablet
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
250
Desktop
NotebookPC
Tablet
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1,600
1,400
1,200
1,000
800
600
400
200
0
MP3
DSC
PMP
Smartphone
MP3
DSC
PMP
Smartphone
Note: MP3: Moving Picture Experts Group Audio Layer-3; DSC: Digital Still
Camera; PMP: Portable Media Player.
Source: Gartner, Goldman Sachs Global Investment Research.
Exhibit 21: Summary table of assumptions and output under three scenarios
Majorassumptions
Smartphoneshipmentin2025E(mnunits)
Highendmix(%)
Midrangemix(%)
Lowendmix(%)
SmartphoneASPin2025E(US$)
Highend
Midrange
Lowend
SamsungPaytransactionsin2025E(US$bn)
OLEDshipmentin2025E('000sqm)
RigidOLED
FlexibleOLED
OLEDASPin2025E(US$persqm)
Rigid
Flexbile
Outputundermajorassumptions
SmartphoneEBITin2025E(Wtn)
Highend
Midrange
Lowend
MobileserviceEBITin2025E(Wtn)
Mobilepayment
Mcommerce
OLEDEBITin2025E(Wtn)
RigidOLED
FlexibleOLED
SemiconductorEBITin2025E(Wtn)
DRAM
NAND
LSI
Totalsalesin2025E(Wtn)
TotalEBITin2025E(Wtn)
Bearcase
Basecase
Bullcase
187
15%
9%
76%
133
380
200
75
2,423
22,938
4,580
18,357
1,730
1,808
1,710
231
17%
10%
73%
146
400
204
78
4,194
22,938
4,580
18,357
1,864
1,888
1,857
717
11%
3%
87%
98
429
202
54
15,395
27,338
4,869
22,469
1,863
1,888
1,857
(2.1)
(0.4)
(0.3)
(1.4)
0.5
0.5
1.5
0.2
1.3
7.6
3.3
3.8
0.5
181.0
6.9
(0.8)
0.7
(0.2)
(1.3)
0.9
0.9
5.1
0.6
4.5
12.2
5.0
5.2
2.0
197.1
16.9
4.7
2.6
(0.1)
2.2
9.6
2.4
7.1
6.7
0.6
6.0
14.7
5.7
6.5
2.5
271.7
35.7
Key risks
10
1to1 line
Sectoraverageline
2.0
2016EP/B
1.5
SEMCO
LGI
SamsungElectronics
SKHynix
1.0
LGE
LGD
SDI
0.5
0.0
0.0
0.5
1.0
1.5
2.0
2.5
2016EROE/COE
Note: 1) Numbers for LGE, LGD, and LGI based on Bloomberg consensus. 2) Uniformly applied COE of 10% in ROE/COE
calculation. COE figure does not impact the final outcome of our valuation process.
Source: Bloomberg, Goldman Sachs Global Investment Research.
Company
SEC
Sectoraverage
3yearaverage
Target
2016EROE
P/B/ROE/COE discount/premium P/B/ROE/COE
1.0
25%
0.8
11%
TargetP/B
(X)
1.0
2016E Targetprice
BVPS(W)
(W)
1,300,187
1,300,000
11
0%
0%
10%
10%
20%
20%
Avg.discount
since2005=
44%
30%
40%
Avg.discount
since2005=
52%
30%
40%
50%
50%
60%
60%
70%
70%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
80%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
P/Bpremium/(discount)vs.globalpeers
CashadjustedP/Epremium/(discount)vs.globalpeers
Averagediscountsince2005
Averagediscountsince2005
Our DCF cross-check, assuming 9.4% WACC based on: (1) our capital asset pricing model
derived cost of equity of 9.9% (applying equity risk premium of 6%, risk-free rate of 3%
in line with our portfolio strategy team and 5-year beta of 1.15), (2)cost of debt
assumption of 3.5% which is mid-range of the interest rates for SECs debt as of 2015
(1.8%-7.7%), and (3) 1% terminal growth rate (based on our assumption that the company
will continue to grow at around the pace of inflation as inflation growth rate from 2013 to
2015 was around 1% per year in Korea) implies SECs theoretical DCF valuation at W1.2mn
per share, which is largely in line with our 12-m P/B-ROE-based target price of W1.3mn.
9.9%
2) Debt component
Cost of debt
Tax rate
After-tax cost of debt
3.5%
25%
2.6%
WACC
9.4%
1.0%
143,155
40,870
-65,421
50%
6,403
169,463
138.4
1,224,664
2016E
202,749
11.9%
24,054
6,650
22,631
-7,105
20,000
27,140
2017E
200,111
-1%
11.2%
22,392
-7%
6,456
24,497
463
23,000
16,970
-37.5%
2018E
202,372
1%
11.0%
22,283
0%
6,547
26,516
1,118
24,000
17,133
1.0%
2019E
200,646
-1%
11.3%
22,659
2%
6,560
26,650
-214
26,000
16,963
-1.0%
2020E
200,244
0%
11.1%
22,179
-2%
6,534
27,167
-64
27,040
15,836
-6.6%
2021E
199,595
0%
10.6%
21,226
-4%
6,381
27,693
-104
28,122
14,520
-8.3%
2022E
199,247
0%
10.0%
19,964
-6%
6,139
28,230
-56
29,246
12,864
-11.4%
2023E
198,897
0%
9.3%
18,479
-7%
5,827
28,778
68
30,416
10,945
-14.9%
2024E
197,933
0%
8.9%
17,538
-5%
5,633
29,336
-155
31,633
9,763
-10.8%
2025E
197,111
0%
8.6%
16,902
-4%
5,503
30,182
248
32,898
8,434
-13.6%
12
Exhibit 27: SECs share price vs. KOSPI and MSCI Asia ex
Japan (since 2013)
(Indexedat 1/1/2013=100)
130
180
120
160
110
140
100
120
90
80
100
70
80
60
Jan13 May13 Sep13 Jan14 May14 Sep14 Jan15 May15 Sep15 Jan16
SEC
KOSPI
MSCIAsiaex.JP
60
Jan13 May13 Sep13 Jan14 May14 Sep14 Jan15 May15 Sep15 Jan16
SEC
Semipeers
Hardwarepeers
Source: Datastream.
Exhibit 29: SECs share price vs. KOSPI and MSCI Asia ex
Japan (since 2015)
(Indexedat 1/1/2015=100)
120
120
110
110
100
100
90
90
80
80
70
60
Jan15
70
May15
SEC
KOSPI
Sep15
Jan16
MSCIAsiaex.JP
60
Jan15
May15
SEC
Sep15
Semipeers
Jan16
Hardwarepeers
Source: Datastream.
13
18X
2.5X
25%
2.0X
20%
1.5X
15%
1.0X
10%
0.5X
5%
16X
14X
12X
10X
8X
6X
4X
2X
0X
Jan05
Jan07
12mFWDP/E
Jan09
Jan11
10yravg.
Jan13
0.0X
Jan05
Jan15
+1STDEV
1STDEV
0%
Jan07
Jan09
Jan11
12mFWDP/B
10yravg.
1STDEV
ROE(RHS)
Jan13
Jan15
+1STDEV
Given its decreasing CROCI and ROE outlook, along with negative earnings growth not
only in the near term but also in the medium/long term, we expect any meaningful
expansion in SECs valuation multiples to be largely limited. We maintain our Neutral
rating on SEC.
35%
40%
30%
35%
30%
25%
25%
20%
20%
15%
15%
10%
10%
0%
0%
CROCI
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
5%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
5%
ROE
14
Company
Samsung Electronics
Semiconductors
SK Hynix
Micron
SanDisk
Toshiba
Intel
Mediatek
TSMC
Qualcomm
ARM Holdings
Broadcom
Average
Handset/hardware
Apple
Blackberry
Microsoft
Lenovo
ASUSTek Computer
Acer
Cisco Systems
Hitachi
HP
Nokia
Average
Display Panel
LG Display
AUO
Innolux
Sharp
Japan Display
Average
Consumer Electronics
LG Electronics
Sony
Panasonic
Whirlpool
Philips Electronics
Electrolux
Average
Tickers
005930.KS
Market
Price as of
cap
Rating
6-Apr-16 (US$ mn)
Neutral 1,285,000 161,280
000660.KS
Buy
MU
Neutral
SNDK Not Rated
6502.T
Sell
INTC
Neutral
2454.TW
Neutral
2330.TW
Buy
QCOM
Buy
ARM.L
Buy*
AVGO
Buy
27,500
$10.47
$75.87
205.7
$32.08
NT$231.00
NT$153.50
$50.62
1,029.00
$157.54
17,321
10,847
15,419
7,924
157,641
11,189
122,634
76,791
20,437
45,529
AAPL
BBRY
MSFT
0992.HK
2357.TW
2353.TW
CSCO
6501.T
HPQ
NOKIA.HE
Buy*
Sell
Neutral
Neutral
Neutral
Sell
Buy
Buy
Neutral
Neutral
$110.96
$7.10
$55.12
HK$5.69
NT$283.50
NT$12.05
$28.00
473.2
$12.28
5.13
620,724
3,725
442,503
8,132
6,795
1,129
142,716
20,771
21,920
21,651
034220.KS
2409.TW
3481.TW
6753.T
6740.T
CS
NC
NC
NC
Neutral
25,900
NT$9.20
NT$11.00
127.0
204.0
8,391
2,681
3,308
1,985
1,114
066570.KS
6758.T
6752.T
WHR
PHG.AS
ELUXb.ST
CS
Buy*
Neutral
Buy
Buy*
CS
62,800
2850.0
870.3
$182.35
23.83
$214.00
8,897
32,679
18,361
14,387
24,796
8,143
P/E
2016E 2017E
9.0x
9.2x
7.2x
47.4x
43.6x
13.8x
14.7x
12.5x
15.0x
29.4x
16.7x
22.3x
6.7x
30.3x
30.4x
14.4x
11.9x
13.5x
11.0x
11.8x
24.4x
13.1x
16.7x
P/B
2016E 2017E
1.0x
0.9x
0.8x
0.8x
2.8x
1.4x
2.3x
1.5x
2.9x
2.5x
7.7x
1.8x
2.5x
0.7x
0.8x
2.9x
1.2x
2.2x
1.4x
2.5x
2.3x
7.1x
1.6x
2.3x
ROE (%)
2016E 2017E
11.2% 10.3%
2.5x
4.5x
18.3x
7.4x
7.5x
8.2x
5.9x
6.3x
20.2x
13.9x
9.5x
2.4x
3.2x
14.6x
6.0x
6.5x
7.1x
5.1x
4.8x
17.2x
10.8x
7.8x
12.0%
0.1%
5.7%
3.5%
17.4%
10.1%
24.4%
19.7%
26.8%
17.5%
13.7%
11.7%
3.0%
9.0%
9.0%
18.4%
10.7%
24.3%
24.7%
30.3%
13.1%
15.4%
1.8%
0.0%
0.4%
0.0%
3.2%
5.3%
3.9%
4.0%
0.0%
1.2%
2.0%
2.2%
0.0%
1.7%
0.0%
3.3%
5.0%
3.9%
4.2%
0.0%
1.3%
2.2%
5.6x
17.2x
11.1x
3.5x
7.5x
4.4x
17.8x
10.0x
3.1x
7.8x
6.1x
5.6x
5.4x
5.4x
7.3x
43.7% 45.2%
-12.2% -12.3%
28.3% 32.3%
21.5% 19.4%
10.9% 9.7%
1.8%
1.8%
19.2% 18.9%
9.5% 10.2%
2.2%
0.0%
2.8%
2.7%
5.7%
0.0%
3.9%
3.0%
4.0%
2.9%
2.7%
11.3x
9.4x
20.6x
12.3x
11.3x
31.6x
13.3x
7.8x
7.9x
14.0x
14.5x
18.9x
11.9x
12.2x
31.0x
13.8x
6.8x
7.9x
11.4x
13.7x
1.3x
5.7x
2.5x
1.2x
0.5x
2.3x
0.7x
1.3x
5.7x
2.2x
1.2x
0.5x
2.2x
0.7x
2.2x
2.1x
2.0x
2.0x
6.6x
5.9x
5.6x
6.3x
7.7x
137.8x 15.1x
NA
28.2x
NA
179.2x
NA
43.0x
10.1x
9.3x
74.0x 55.0x
0.8x
0.5x
0.5x
2.0x
0.3x
0.8x
0.8x
0.5x
0.5x
1.9x
0.3x
0.8x
3.3x
3.3x
2.8x
9.8x
2.2x
4.3x
14.7x
12.8x
10.0x
12.4x
11.5x
13.2x
12.4x
0.9x
1.3x
1.0x
2.6x
1.9x
3.1x
1.8x
0.8x
1.2x
0.9x
2.2x
1.9x
2.7x
1.6x
4.9x
4.2x
2.4x
7.4x
7.6x
6.5x
5.5x
12.0x
11.8x
8.9x
10.1x
10.0x
12.0x
10.8x
Dividend yield
(%)
2016E 2017E
1.9%
2.2%
EV/EBITDA
2016E 2017E
2.5x
2.3x
18.3%
15.7%
19.4%
16.1%
2.0%
0.0%
2.5%
2.6%
5.3%
0.0%
3.4%
2.5%
4.0%
4.9%
2.7%
2.7x
3.1x
2.7x
8.4x
1.9x
3.8x
0.7%
-0.2%
-1.6%
-0.8%
2.9%
0.2%
5.1%
1.2%
-0.8%
8.2%
3.1%
3.3%
1.9%
1.8%
3.2%
0.0%
0.0%
1.4%
1.8%
2.2%
2.4%
0.0%
0.0%
1.3%
4.6x
3.6x
2.1x
6.3x
6.3x
6.1x
4.8x
6.0%
10.9%
10.0%
22.6%
16.4%
25.3%
15.2%
6.7%
10.8%
10.4%
23.7%
19.1%
23.8%
15.8%
0.7%
1.8%
3.0%
2.1%
4.4%
3.3%
2.5%
0.8%
1.8%
3.3%
2.3%
4.5%
3.5%
2.7%
Note: * denotes the stock is on Conviction List. CS = Coverage Suspended, NC = Not Covered.
Source: Datastream, Bloomberg, Goldman Sachs Global Investment Research.
1. CROCI: Future returns leadership, with the exception of companies building new product
segments, is likely to be sourced from companies already demonstrating strong industry
relative returns. As a result, the first pillar of the GS SUSTAIN framework understands
which companies products, assets, operating efficiency, geographic exposures etc. are
already generating industry leading returns defined using CROCI (Cash Return of Cash
Invested).
Treatment of investment in R&D varies across the technology sector. As is the case in the
mining and oil industry, ignoring all the R&D (exploration) dollars that were spent on
unsuccessful opportunities risks distorting the returns when future investments turn
successful. To address this, we make an assumption that R&D dollars have a useful life of 5
years and capitalize them across the sector on a rolling 5-year basis (adding back the posttax R&D expense to cash flows). Another nuance for the tech sector is the considerable
cash balances held by some companies. The are many reasons these may be held, e.g. to
cushion earnings volatility and strategic investments, however we take a more simple view
if managements are compelled to keep shareholders cash, then we should capitalize it on
the balance sheet as necessary for operations and reflect the interest income on the cash in
the operating cash flows.
Goldman Sachs Global Investment Research
15
Exhibit 36: CROCI adjustments for capitalizing R&D and net cash in the technology sector
StandardCROCIDefinition
CROCI
Cashflowfromoperations
(Increase)/decreaseinworkingcapital
Netinterestincome/(expense)x(1taxrate)
CapitalizingR&D&
=
Incorporatingnet
Workingcapital(ex.Cash&equivalents)
cash
+Grossfixedassets+Grossintangibles+
CapitalizingR&D
IncorporatingNetCash
R&Dexpense
x(1taxrate)
Interestincomeon
netcashx(1taxrate),
0ifnetdebt
Investmentinassociates
Over
+
5yearrolling
CumulativeR&D
Netcash,
0ifnetdebt
Access to growth: Addressable market growth. Total Addressable Market (TAM) for the
70 stocks in our Asian coverage is divided into 125 sub-industries. Each of the covering
analysts for these sub-industries estimated the segment revenue growth between 2014
and 2019E.
Return on innovation: The framework measures this with the total EBITDA generated in
the 5 years, 2012 to 2016E, divided by the total R&D expenditure over the five years,
2010 to 2014. This assumes that the earnings uplift associated with successful R&D will
hit cash flows within 2 years, but that previous R&D has already been amortized.
Among the Asia tech sector, SECs CROCI declined to 2nd quartile from 1st quartile in 2014
with negative CROCI momentum largely due to decreasing earnings from its hardware
business. As a consequence of limited return on innovation (measured by the total EBITDA
generated in the 5 years 2012 to 2016E divided by the total R&D expenditure over the five
years 2010 to 2014) and weakening franchise momentum, SEC is positioned midway in our
roadmap and Asia tech hardware coverage universe (for details, refer to Navigating the
noise series of reports by Daiki Takayama and team, dated October 26, 2015).
16
Inter-quartile CROCI
Q1 CROCI
Weak positioning
Average positioning
Strong positioning
Weak positioning
Average positioning
Strong positioning
Weak positioning
Average positioning
Strong positioning
Falling momentum
Stable momentum
Improving momentum
Falling momentum
Stable momentum
Improving momentum
Falling momentum
Stable momentum
Improving momentum
Recovery
Defenders
Also-Rans
Contenders
Falling Angels?
Laggards
Exhibit 37: SEC is positioned in the middle within the Asia tech heat map
Leaders
Ibiden (N)
Hitachi (B)
JDI (N)
Pegatron (N)
Ulvac (N)
Catcher (B)
Nidec (B)*
Rohm (N)
SUMCO (N)
Mediatek (N)
Sony (B)*
Kyocera (N)
Yamaha (S)
SCREEN (N)
Casetek (B)*
Acer (S)
TSMC (B)
Joyson NE (RS)
Renesas (N)
Nichicon (N)
Lenovo (N)
Minebea (N)
SK Hynix (B)
Fujitsu (B)*
Disco (B)
Hikvision (B)*
TDK (N)
ASUSTeK (N)
Samsung Electro-Mech. (N)
Mitsubishi Elec. (N)
Panasonic (N)
Wistron (S)
Advantest (S)
NEC (B)*
*denotes stock is on our regional Conviction List. B= Buy, N=Neutral, S=Sell, RS=Rating Suspended.
Source: Goldman Sachs Global Investment Research.
17
Company
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2012-14
2015-17E
125%
95%
80%
60%
36%
26%
28%
38%
38%
36%
38%
36%
35%
002415.SZ
Hikvision
36%
1st Quartile
2018.HK
AAC Tech.
34%
23%
21%
17%
18%
20%
25%
33%
30%
28%
36%
37%
35%
30%
36%
2nd Quartile
002236.SZ
Dahua Tech.
74%
44%
44%
27%
21%
30%
29%
41%
44%
24%
29%
28%
27%
36%
28%
3rd Quartile
4966.TWO
Parade Tech.
57%
56%
44%
51%
26%
31%
28%
28%
24%
36%
27%
4th Quartile
3008.TW
Largan Precision
18%
22%
22%
21%
28%
37%
30%
22%
24%
29%
25%
3658.TWO
Hermes Microvision
55%
35%
50%
65%
40%
38%
26%
20%
20%
47%
22%
5264.TW
Casetek
35%
21%
-18%
43%
32%
17%
18%
19%
21%
31%
20%
-8%
14%
5%
45%
43%
22%
24%
2330.TW
TSMC
22%
24%
24%
22%
23%
20%
19%
16%
20%
18%
20%
20%
23%
20%
19%
18%
21%
19%
6594.T
Nidec
10%
12%
16%
17%
17%
17%
12%
14%
15%
12%
8%
12%
14%
16%
19%
20%
11%
18%
7%
22%
5%
1%
-40%
79%
36%
17%
19%
18%
18%
18%
24%
18%
600699.SS
Joyson NE
Catcher
41%
27%
43%
34%
41%
27%
36%
22%
7%
18%
17%
20%
25%
20%
16%
15%
21%
17%
2454.TW
Mediatek
67%
55%
36%
44%
35%
40%
37%
44%
27%
19%
13%
19%
28%
16%
18%
16%
20%
17%
0992.HK
Lenovo
24%
20%
32%
11%
10%
33%
27%
22%
18%
26%
11%
18%
19%
22%
16%
6981.T
Murata Mfg.
10%
9%
10%
9%
4%
7%
10%
8%
7%
11%
13%
16%
16%
15%
10%
15%
000660.KS
SK Hynix
5%
9%
19%
18%
20%
15%
2%
11%
22%
8%
9%
17%
19%
18%
13%
12%
15%
15%
6146.T
Disco
1%
10%
14%
18%
18%
13%
2%
10%
17%
11%
11%
13%
15%
15%
15%
14%
13%
15%
2382.TW
Quanta Comp.
0%
25%
23%
60%
7%
35%
26%
22%
15%
27%
13%
15%
23%
16%
14%
13%
17%
15%
3673.TW
TPK Holding
32%
21%
57%
48%
47%
44%
28%
22%
16%
11%
15%
31%
14%
4938.TW
Pegatron
33%
12%
12%
12%
16%
20%
11%
18%
12%
16%
14%
005930.KS
Samsung Elec.
15%
15%
13%
12%
20%
14%
6740.T
JDI
6908.T
2474.TW
9%
8%
22%
25%
30%
21%
22%
18%
16%
20%
22%
18%
23%
23%
16%
5%
19%
12%
9%
10%
13%
IRISO Elec.
8%
12%
19%
23%
19%
11%
5%
12%
12%
12%
12%
17%
18%
13%
13%
13%
16%
13%
6770.T
Alps Elec.
10%
11%
12%
15%
12%
5333.T
NGK Insulators
6%
6%
6%
7%
9%
12%
8%
9%
8%
5%
4%
9%
10%
11%
12%
12%
8%
12%
Nitto Denko
11%
12%
14%
18%
14%
14%
9%
13%
13%
9%
11%
10%
12%
12%
11%
11%
11%
11%
7735.T
SCREEN
2%
4%
12%
11%
14%
7%
0%
-4%
12%
11%
4%
9%
10%
11%
12%
11%
7%
11%
046890.KQ
Seoul Semicon.
62%
27%
13%
15%
3%
13%
27%
-5%
0%
15%
13%
14%
10%
9%
9%
11%
6762.T
TDK
10%
11%
12%
11%
8%
10%
11%
7%
5%
9%
11%
9%
13%
11%
8%
11%
6807.T
Japan Aviation
7%
8%
7%
11%
10%
11%
7%
8%
9%
10%
12%
15%
15%
13%
10%
10%
14%
11%
2317.TW
Hon Hai
83%
27%
32%
30%
32%
28%
19%
21%
22%
16%
9%
18%
17%
11%
11%
10%
15%
11%
2324.TW
Compal Elec.
25%
20%
14%
23%
19%
21%
21%
23%
17%
12%
9%
13%
15%
10%
12%
11%
13%
11%
8035.T
Tokyo Electron
6%
10%
18%
15%
18%
16%
5%
5%
12%
8%
5%
9%
9%
10%
11%
11%
8%
11%
006400.KS
Samsung SDI
18%
22%
19%
11%
9%
4%
9%
8%
9%
6%
5%
3%
6%
7%
17%
8%
5%
10%
6728.T
Ulvac
6%
6%
9%
13%
18%
11%
10%
4%
7%
6%
1%
3%
5%
11%
10%
10%
3%
10%
6756.T
Hitachi Kokusai
3%
10%
6723.T
Renesas
6702.T
Fujitsu
4%
5%
8%
9%
12%
11%
9%
8%
8%
9%
6%
7%
2357.TW
ASUSTeK
12%
18%
5%
33%
15%
16%
15%
12%
5%
19%
22%
18%
6758.T
Sony
10%
10%
9%
9%
9%
9%
5%
5%
6%
6%
7%
6%
6592.T
Mabuchi Mot.
8%
5%
7%
5%
6%
6%
2%
4%
2%
1%
6%
8%
6503.T
Mitsubishi Elec.
5%
6%
8%
9%
10%
9%
8%
8%
10%
10%
7%
6479.T
Minebea
7%
8%
7%
7%
8%
9%
7%
7%
8%
7%
3231.TW
Wistron
21%
15%
14%
19%
18%
31%
28%
31%
22%
17%
6752.T
Panasonic
10%
6%
9%
7%
8%
6%
1%
8%
7%
2%
4%
8%
8%
8%
9%
9%
7%
9%
5334.T
NGK Spark
7%
7%
8%
10%
10%
9%
-3%
3%
7%
7%
7%
9%
7%
8%
9%
9%
8%
9%
6988.T
7%
11%
8%
5%
6%
8%
7%
5%
10%
14%
13%
11%
11%
10%
12%
8%
9%
9%
11%
9%
0%
3%
6%
5%
5%
10%
9%
10%
11%
10%
8%
26%
13%
9%
7%
7%
3%
3%
10%
6%
3%
6%
9%
10%
10%
11%
6%
9%
10%
10%
10%
8%
10%
14%
11%
9%
9%
18%
10%
7%
9%
10%
10%
6%
10%
9%
9%
10%
10%
8%
10%
9%
12%
9%
9%
9%
9%
9%
5%
8%
12%
10%
9%
8%
8%
9%
12%
16%
14%
10%
8%
9%
14%
9%
10%
6857.T
Advantest
-2%
13%
19%
19%
13%
8%
-1%
-1%
6%
8%
5%
2%
10%
9%
8%
8%
6%
9%
2303.TW
United Microelec.
11%
14%
16%
11%
9%
9%
8%
7%
10%
7%
6%
7%
8%
8%
9%
8%
7%
8%
009150.KS
Samsung Electro-Mech.
14%
9%
12%
9%
15%
15%
13%
10%
24%
9%
16%
11%
8%
5%
10%
10%
11%
8%
6701.T
NEC
24%
11%
6%
6%
4%
5%
7%
6%
7%
7%
8%
9%
7%
8%
6806.T
Hirose Elec.
11%
11%
8%
8%
8%
8%
8%
10%
9%
9%
8%
7%
9%
8%
6703.T
Oki Elec.
8%
11%
7951.T
Yamaha
7%
9%
8%
6%
7%
7%
3%
5%
6%
4%
2%
4%
5%
7%
8%
8%
4%
7%
Taiyo Yuden
10%
9%
6%
9%
12%
10%
4%
6%
8%
5%
6%
7%
9%
8%
6%
6%
7%
7%
4062.T
Ibiden
8%
8%
11%
16%
19%
18%
11%
12%
13%
10%
8%
9%
9%
8%
6%
6%
9%
7%
6501.T
Hitachi
5%
7%
7%
8%
7%
7%
7%
7%
8%
7%
7%
7%
8%
6%
6%
7%
7%
6%
7250.T
Pacific Ind.
4%
5%
5%
6%
5%
7%
5%
10%
8%
6%
6%
6%
5%
6%
6%
7%
6%
6%
6963.T
Rohm
17%
11%
9%
10%
9%
7%
4%
5%
5%
5%
5%
5%
6%
5%
6%
6%
5%
6%
6971.T
Kyocera
8%
7%
8%
7%
9%
8%
4%
6%
8%
7%
6%
6%
7%
6%
5%
5%
6%
5%
6929.T
Nippon Ceramic
2%
6%
11%
9%
6%
7%
4%
5%
7%
7%
6%
6%
5%
4%
5%
6%
6%
5%
6767.T
Mitsumi Elec.
7%
3%
7%
11%
14%
14%
10%
9%
5%
6%
4%
6%
7%
4%
5%
6%
6%
5%
6967.T
Shinko Elec.
10%
10%
11%
13%
14%
11%
5%
8%
8%
6%
6%
7%
9%
6%
4%
4%
7%
5%
26%
15%
20%
8%
1%
4%
4%
6976.T
9%
4%
10%
6%
11%
7%
12%
6%
4%
5%
3%
7%
7%
5%
4%
8%
7%
8%
8%
7%
2%
4%
3%
4%
4%
4%
4%
4%
11%
4%
4%
5%
4%
4%
4%
4%
4%
4%
1%
5%
7%
3%
3%
3%
4%
3%
3436.T
SUMCO
1347.HK
Hua Hong
6997.T
Nippon Chemi-Con
4%
5%
6996.T
Nichicon
6%
4%
6%
6%
6%
4%
0%
1%
5%
6%
1%
3%
4%
3%
3%
3%
3%
3%
2353.TW
Acer
6%
9%
15%
11%
15%
17%
15%
16%
3%
-2%
3%
-1%
5%
-1%
2%
2%
2%
1%
6%
8%
9%
7%
2%
5%
7%
18
(Wtn)
60
60
35%
50
50
30%
40
40
30
30
20
20
10
10
25%
20%
15%
10%
5%
0%
2009
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
EBITDA
Capex
2010
FreeCashFlow
2011
2012
Netcash
2013
2014
2015
Netcashas%ofmarketcap(RHS)
Despite its strong cash position, SEC maintained a less aggressive stance on improving
shareholder return, compared with global peers. Comparing payout ratios, we see that SEC
currently lags global tech peers both on a net income basis (Exhibit 41) and cash flow basis
(Exhibit 42). We think this could be attributed to SECs focus on growth initiatives with
aggressive capital expenditure rather than shareholders return, historically.
Exhibit 41: SEC has lagged global peers in dividend
payout
Average payout ratio comparison (2000-2015)
30%
27%
25%
23%
25%
90%
80%
70%
20%
60%
15%
51%
50%
11%
40%
10%
26%
30%
20%
5%
14%
10%
0%
0%
SEC
Semipeers
Handset/hardware
Consumer
peers
Electronicspeers
SEC
Semipeers
Handset/hardware
Consumer
peers
Electronicspeers
19
policy (2015-2017) in October 2015 which states that: 1) the company will return 30%-50%
of annual free cash flow (FCF) to shareholders for the next three years, 2) shareholder
return will include dividends and share buybacks with cancellation, and 3) the next three
years annual shareholder return will focus primarily on dividends.
Exhibit 43: SEC has improved shareholder return via recently announcing share buyback and cancellation
SECs buyback history since 2000
Announce
date
Buyback
startdate
Buyback
enddate
10/16/2000
3/25/2002
8/2/2002
3/7/2003
10/17/2003
4/7/2004
9/13/2004
6/10/2005
4/14/2006
1/12/2007
11/26/2014
10/29/2015
1/28/2016
10/23/2000 12/26/2000
4/2/2002 4/23/2002
8/6/2002 8/28/2002
3/11/2003 4/10/2003
10/21/2003 1/13/2004
4/12/2004 4/30/2004
9/17/2004 11/18/2004
6/14/2005 8/29/2005
4/18/2006 6/30/2006
1/16/2007 3/16/2007
11/27/2014 1/26/2015
10/30/2015 1/12/2016
1/29/2016 4/28/2016
#ofcommon %ofcommon
share
share
buyback(mn)
outstanding
3.00
2.0
1.33
0.9
2.66
1.7
3.10
2.0
2.15
1.4
3.06
2.0
4.00
2.7
3.80
2.6
2.60
1.8
2.80
1.9
1.65
1.1
2.23
1.5
2.10
1.4
Common
sharebuyback
amount(Wbn)
503
506
881
911
963
1,877
1,807
2,033
1,614
1,640
2,189
2,876
2,468
#ofpreferred
share
buyback(mn)
0.40
0.21
0.40
0.47
0.33
0.26
%ofpreferred
share
outstanding
1.7
0.9
1.7
2.0
1.4
1.1
Preferred
sharebuyback
amount(Wbn)
30
44
65
67
84
94
0.30
0.40
0.40
0.25
1.24
0.53
1.3
1.8
1.8
1.1
5.4
2.5
109
193
180
257
1,376
522
Total
Buybackfor
sharebuyback
cancellation?
amount(Wbn)
532
X
549
X
946
X
978
O
1,043
O
1,971
O
1,807
X
2,142
X
1,807
X
1,820
X
2,446
X
4,253
O
2,990
O
Note: Buyback and cancellation announced on Jan 28, 2016 has not been completed yet, so the buyback and cancellation amount is subject to change; O denotes
that the buyback was for cancellation, while X denotes it was not.
Source: Company data.
20
40,000
60%
35,000
50%
30,000
40%
25,000
20,000
30%
15,000
20%
10,000
10%
5,000
0
0%
DPS
Payoutratio
Payoutincludingbuyback
Despite gradual increase in dividend, our base case assumes that SECs net cash will
expand to W124tn in 2025E on the back of solid FCF generation despite decreasing
earnings, from W54tn in 2015, resulting in sharp dips in ROE to 5.6% in 2025E (vs. 11.2% in
2015). In this section, we analyze how SEC can create shareholder value and improve
return on capital.
To analyze the long-term impact of increasing dividend, we assume a scenario where SEC
aggressively increases its dividend payout ratio up to 80% from 2019E (vs 16% in 2015). Of
note, we assume 80% payout ratio for our scenario analysis as this will maximize dividend
payout to shareholders without lowering SECs net cash level by 2025 (i.e., maintaining net
cash level as of 2015 despite substantial increase in shareholder return).
As per our analysis, its ROE and ROIC in 2025E would potentially expand to 6.5% and 6.9%
vs. our base case estimates of 5.6% and 5.1%, respectively. More importantly, we note that
SECs dividend yield will increase significantly. Applying SECs current share pricing (as of
April 6, 2016), its dividend yield will increase to 9% in 2020E and 7% in 2025E, far higher
than the average dividend yield of KOSPI 200 companies of 1.5% since 2010.
21
9%
(%)
2.3
8%
2.1
7%
1.9
6%
1.7
5%
1.5
4%
1.3
3%
1.1
2%
0.9
1%
0.7
10%
0.5
Jan10
0%
2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Basecase
Jan11
Jan12
Jan13
KOSPI200dividendyield
80%div.payoutcase
Jan14
Jan15
Jan16
Average(2010current)
We believe investors have viewed SEC as a growth stock given: (1) its solid growth
trajectory in the past in terms of earnings as well as market cap, and, more importantly, (2)
its weak shareholder return vs global peers. However, if SEC were to sustain a high
dividend policy over the long term, we think more investors would start perceiving it as a
dividend stock. Assuming target dividend yield of 5% (in line with the highest yield stocks
in KOSPI 200 for 2016E), SECs implied valuation could theoretically reach W2.25mn in
2020E, which suggests +75% variance vs. the current share price. In conclusion, our
analysis indicates that SEC would be able to create significant value for shareholders over
the longer term, while maintaining its current net cash position if the company were to
substantially increase dividends.
Exhibit 48: Summary of 80% dividend payout scenario vs. base case
Dividendpayoutratio
Basecase
80%div.payoutcase
DPS
Basecase
80%div.payoutcase
ROE
Basecase
80%div.payoutcase
ROIC
Basecase
80%div.payoutcase
Dividendyield
Basecase
80%div.payoutcase
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
17.5%
17.5%
20.2%
20.2%
21.3%
21.3%
21.9%
80.0%
22.7%
80.0%
24.0%
80.0%
25.7%
80.0%
27.9%
80.0%
28.9%
80.0%
29.6%
80.0%
25,000 28,000 30,000 31,000 32,000 33,000 34,000 35,000 35,000 35,000
25,000 28,000 30,000 113,088 112,638 107,818 101,439 93,920 88,590 84,552
11.2%
11.2%
10.3%
10.3%
9.7%
9.7%
9.1%
9.1%
8.5%
8.7%
7.8%
8.3%
7.1%
7.8%
6.4%
7.2%
5.9%
6.8%
5.6%
6.5%
11.1%
11.1%
9.8%
9.8%
9.2%
9.2%
8.8%
8.8%
8.1%
8.4%
7.4%
8.2%
6.7%
7.8%
5.9%
7.3%
5.4%
7.1%
5.1%
6.9%
1.9%
1.9%
2.2%
2.2%
2.3%
2.3%
2.4%
8.8%
2.5%
8.8%
2.6%
8.4%
2.6%
7.9%
2.7%
7.3%
2.7%
6.9%
2.7%
6.6%
22
23
SEC has achieved remarkable growth since the 1990s, becoming one of the largest
companies in the TMT market globally in terms of sales/profit. In this section, we
analyze SECs key success drivers during this phase so as to identify its core
competency.
(Wtn)
(Wtn)
250
25%
40
35
200
20%
30
25
150
15%
20
100
10%
15
10
50
5%
5
0
0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Sales
OP
OPM(RHS)
Compared with global peers in the technology sector, we note SECs clear outperformance
in terms of market cap growth. SECs market cap expanded to US$170bn in 2015 from
US$36bn in 2000 (CAGR of 11%), marking it the second-largest gainer following Apple
among global technology peers.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Apple
CiscoSystems
Intel
Microsoft
Qualcomm
TSMC
Samsung
Others
Source: Datastream.
Source: Datastream.
24
Although SEC was able to see consistent revenue growth over the past two decades, its
profitability saw a rather bumpy trend as a consequence of the cyclical nature of its
components businesses including semiconductors and display panels. Accordingly, SECs
EBIT share in the global TMT market for the past two decades has fluctuated along with
semiconductor cycles and, recently, hardware product cycles.
14%
12%
10%
8%
6%
4%
2%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
0%
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
Given intense capital requirement for the semiconductor and display panel businesses,
SECs CROCI remained lower than global peers in the hardware market over the past 10
years.
60%
60%
50%
50%
40%
40%
30%
20%
30%
10%
20%
2009
2011
2013
2015
2017E
Semipeers
Consumerelectronicspeers
Acer
Sony
Philips
Hitachi
Nokia
Panasonic
ASUSTeK
Whirlpool
SanDisk
BlackBerry
Mediatek
Micron
Intel
SKHynix
TSMC
Qualcomm
Nvidia
Microsoft
Lenovo
SamsungElectronics
2007
SEC
Handset/hardwarepeers
AvagoTechnologies
2005
AnalogDevices
ARM
0%
Apple
0%
10%
25
600
500
400
300
200
100
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Desktop PC
NBPC
Tablet PC
Feature phone
Smartphone
CRT TV
PDP TV
OLED TV
LCD TV
26
SEC was founded in 1969 to make CRT TVs and home appliances, licensing from Japanese
companies such as Sanyo and NEC. In order to catch up with the leading competitors, it
adopted a fast follower strategy, producing hardware products rapidly following cuttingedge products. Despite its efforts, SEC was not able to gain meaningful presence in the
global tech hardware industry in the 1990s given: (1) lower product quality with limited
expertise in assembly and manufacturing, and (2) lackluster brand recognition, compared
with leading hardware competitors.
Digital sashimi
theory: Getting the
most advanced
products onto retail
shelves ahead of the
competition in order
to charge premium
prices until
competitors catch up
In the 2000s, SEC started to gain share substantially in the global tech hardware market
primarily due to transition from analog products to digital products which led to an even
faster product cycle as well as lower entry barriers in terms of manufacturing/assembly
technique. In addition, remarkable improvement in SECs brand recognition from the late1990s contributed to meaningful share gain for SECs hardware business as well. We view
that the former Vice-Chairman (from 1999 to 2008) and CEO (from 1996 to 2008) of SEC
Jong Yong Yuns digital sashimi theory reflects SECs hardware strategy in the 2000s
which was one of major drivers behind substantial share gain in the global hardware
industry.
Exhibit 59: SEC has seen rapid gains in handset and LCD
TV market share over the past 10 years
(Wtn)
30%
200
25%
180
20%
160
140
15%
120
100
10%
80
5%
60
40
2015
2014
2013
2012
2011
2010
2009
Handsetmarketshare
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1995
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1996
0%
20
LCDTVmarketshare
27
(US$bn)
60%
60%
50
45
40
35
30
25
20
15
10
5
0
50%
50%
GlobalDRAMmarket
SEC'scapexportion(RHS)
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0%
2003
0%
2002
10%
2001
10%
2000
20%
1999
20%
1998
30%
1996
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
30%
40%
1997
40%
SEC'sDRAMm/s
We believe that SECs preemptive and aggressive investment in DRAM largely stemmed
from: (1) strong leadership and initiative from the chairman (Kun-hee Lee), and (2) SECs
diversified business portfolio which provided the company with cash support, especially
during the downcycles. SECs other component businesses including NAND flash, TFT LCD,
and AM OLED have followed its DRAM strategy, resulting in leading positions in the
respective industries.
Exhibit 62: SEC has been able to attain significant market share in various components
SECs global market share in NAND, large size TFT-LCD, and small/medium AM OLED (2015)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
NAND
LargeTFTLCD
Small/mediumAMOLED
28
Exhibit 63: SEC is one of the few tech companies operating in both the components and
hardware segments
SEC business structure (2015)
Semiconductor
Salesportion
(2015)
OPportion
(2015)
OPmargin
(2015)
DRAM
10%
40%
47%
NAND
5%
7%
15%
SystemLSI
6%
2%
3%
AMOLED
6%
5%
11%
LCD
7%
4%
6%
TV
13%
4%
3%
Appliances
8%
1%
1%
Handset
39%
37%
11%
TabletPC
3%
1%
3%
PCandothers
4%
0%
2%
Component
DisplayPanel
Samsung
Electronics
Consumer
Electronics
Hardware
IT&Mobile
Although the vertical integration model has its distinct advantages such as effective cost
management and shorter product development cycles, it is not easy to find successful
cases of vertical integration in the past in the global technology industry as: (1) improving
efficiency in operations is hard to achieve given expansion in size of operations, and (2)
lack of competency within any part of the vertical chains meaningfully deteriorates value
addition.
In case of SEC, the company has maintained a leading position in key components such as
DRAM, NAND, TFT LCD, and AM OLED which critically determine performance of hardware
products. As a consequence of close cooperation within the components division from the
product design-in stage, SECs hardware business could adopt cutting-edge components
ahead of competitors. For instance, SEC was the first company to mass produce high-end
flagship smartphones with AM OLED (Galaxy S in 2010), large screen AM OLED
smartphones also known as phablets (Galaxy Note in 2011), smartphones with curved AM
OLED display (Galaxy Round in 2013), smartphones with bended AM OLED screen (Galaxy
Note Edge in 2014), smartphones with dual-edge side view (Galaxy S6 edge in 2015), UFS
(Galaxy S6 in 2015), and dual pixel image sensor (Galaxy S7).
In our view, early access to cutting-edge components allowed SEC to: (1) roll out best-inclass hardware products, and (2) pioneer forward-looking products ahead of its
competitors. Given its strong leadership in flexible display, we think SEC may potentially
be among the first companies to introduce foldable mobile devices combining a
smartphone and a tablet/NBPC.
29
In light of the vertical integration, SECs hardware business could achieve cost
competitiveness as well as fast product development cycles along with solid collaboration
with its own components division.
7 to 4 program (1994): Kun-hee Lee changed official work hours from 9am-6pm to
7am-4pm so as to bolster productivity and increase concentration to work by
shortening commute time avoiding the rush hour. Chairman Lee encouraged
employees to have time for self-improvement courses after official work hours.
Quality is top priority (1995): Kun-hee Lee piled 150,000 inoperable mobile phones in
the Gumi plant and burnt them all to the ground in front of two thousand employees.
Chairman Lee delivered a clear message: Do not compromise on quality and quality is
the first priority.
Significant cost control (1997-1999): Faced with the Asian financial crisis, Chairman
Lee decided to cut over 30% of total employees of the Samsung Group to lower costs.
SECs total number of employees declined by around 30% yoy from 58,000 to 43,000 in
1997. In addition, SEC shut down its Suwon plant for two months in order to lower
inventory levels for TVs and appliances.
30
Period
19992004
Goal
Improvingbrandawareness
Phase2
20052012
Improvingbrandpreference
Phase3
2013Present
Becomingthemostadmiredbrand
Keymilestones
Establishedasinglebrandstrategywithalongtermperspective
ReducedSamsung'smarketingagenciesfrom55agenciesto1(FooteCone&Belding)
EricKimjoinedasanexecutivevicepresidentofglobalmarketingoperations(1999)
Introducednewslogan,'SamsungDigitAll:everyone'sinvited'(1999)
AnnouncedastrategicmarketingandtechnologydevelopmentalliancewithAOLTimeWarner(2001)
AnnouncedaglobalpartnershipwithWarnerBrothers(2003)
IntroducedSamsungmobiledevicesinthemovie"TheMatrixReloaded"(2003)
Launchedanewworldwideadvertisingcampaigncalled"Imagine"(2005)
BecametheofficialsponsorofChelseainEPL(2005)
BecameanofficialOlympicstechnologysponsor(2006)
Introducednewslogan,'InspiretheWorld,CreatetheFuture'(2009)
UnveiledtheGalaxybrandforflagshipsmartphones(2010)
Announced"LaunchingPeople"campaign(2013)
Launched"NewBusinessExperience"campaign,targetingB2Bmarket(2013)
AnnouncedglobalmarketingpartnershipwithAmblinEntertainment'sJurassicWorld(2015)
On the back of its strategic focus on brand value enhancement as well as innovative
products, SECs brand value has improved substantially, in our view. According to
Interbrand, a third party research firm specializing in brand value, SECs brand value
improved to 7th place in 2015 from 42nd in 2001.
Exhibit 65: SECs brand value increased to 7th place in 2015 from 42nd in 2001
Major tech companies brand value ranking
0
5
10
15
20
25
30
35
40
45
50
55
60
65
1
7
6
15
20
14
18
42
49
58
2001
2003
2005
Apple
2007
Samsung
2009
Intel
2011
HP
2013
2015
Sony
Source: Interbrand.
31
14%
18%
16%
12%
14%
10%
12%
10%
8%
8%
6%
6%
4%
4%
2%
0%
2%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SEC
Semipeers
Handset/hardwarepeers
0%
Consumerelectronicspeers
SEC
Semipeers
Handset/hardware
Consumer
peers
electronicspeers
Given its substantial revenue growth, however, SECs R&D spending since 2000 has been
far higher than its global competitors. SECs R&D expenditure in 2015 was US$13bn. We
believe that its intense commitment to R&D was another major driver for its success in the
past.
Exhibit 68: Top five R&D spenders among SECs global peers
1st
2nd
3rd
4th
5th
2000
Panasonic
Microsoft
Hitachi
Intel
Sony
2001
Panasonic
Microsoft
Cisco
Intel
Sony
2002
Microsoft
Panasonic
Intel
Sony
Cisco
2003
Microsoft
Panasonic
Sony
Intel
Nokia
2004
Microsoft
Panasonic
Intel
Nokia
Sony
2005
Microsoft
SEC
Intel
Panasonic
Nokia
2006
Microsoft
SEC
Intel
Panasonic
Nokia
2007
Microsoft
Nokia
SEC
Intel
Panasonic
2008
Microsoft
Nokia
SEC
Intel
Panasonic
2009
Microsoft
Nokia
SEC
Intel
Cisco
2010
Microsoft
SEC
Nokia
Intel
Panasonic
2011
Microsoft
SEC
Intel
Nokia
Panasonic
2012
SEC
Microsoft
Intel
Nokia
Panasonic
2013
SEC
Microsoft
Intel
Cisco
Nokia
2014
SEC
Microsoft
Intel
Cisco
Apple
In addition to significant investments in R&D, SEC has been flexibly changing its R&D
structure so as to enhance R&D efficiency as well as its practical application for new
product development. SEC established an R&D center in Suwon in 1987 in order to develop
technology capabilities required for diversified business areas and prepare for the next
growth drivers. In order to prevent excessive competition and redundant R&D investments
among divisions, SEC created the CTO function in 2004 and put different teams such as
CTO strategy team and Digital Solution Center under the CTO. With the R&D function
currently being mainly led by Samsung Advanced Institute of Technology (SAIT), R&D
centers, and product development teams in each division, we believe that SEC could be
flexible in its R&D structure and in a position to balance its short and long term goals.
32
Consumer Electronics
Telecommunications
Semiconductors
CentralR&DCenter
VisualDisplay
Computer
Mobile
Memory
DomesticSales
CorporateManagement
ProductionTech
R&DCenter
Video
Display
Network
SystemLSI
CustomerService
Center
Corporate Strategy
HVAC
Storage
Living
Printing
AMLCD
CEO
Semiconductors
Corporate
Management
CTO
DigitalMedia
Telecommunications
SoftwareR&DCenter
VisualDisplay
Mobile
ProductionTech
R&DCenter
DigitalAV
DigitalSolution Center
ComputerSystem
IPStrategy
DigitalPrinting
CustomerService
ManagementCenter
CTOStrategy
DigitalMedia
R&DCenter
SuwonSupportCenter
Appliances
LCD
Memory
Domestic Sales
Network
SystemLSI
GlobalMarketing
Telecommunications
R&DCenter
Storage
DesignManagement
CEO
CFO
DeviceSolutions
Consumer Electronics
IT &Mobile
Memory
VisualDisplay
Mobile
SystemLSI
DigitalAppliances
Network
LED
Printing Solution
DisplayPanel
(SamsungDisplay)
Medical Devices
AdvancedInstituteof
Technology
CorporateManagement
Office
33
Secure collectivecompetitiveness
Areasof
support
Upgrade
manufacturing
Acquiretechnology
Fosterhuman
resources
Description
Improve qualityand
productivity,buildIT
infrastructure
Developnewtechnologiesand
processes,localdevelopmentof
partsandequipment
Functionalspecialists,future
leaders
Methodsof
Support
Foundationfor
Support
Funding,humanresources,training
Departmentdevoted tosupportingbusinesspartners,supportpolicyandsystem
34
(Wtn)
4.5
120
4.0
100
3.5
3.0
80
2.5
60
2.0
1.5
40
1.0
20
0.5
0
2006 2007
SEC'shandset
0.0
2013 2014 2015
SDImobilebattery(RHS)
25%
20%
15%
10%
5%
0%
5%
10%
2006
2007
2008
2009
2010
2011
2012
SEC'shandsetOPM
SEMCOmobilecomponentOPM
2013
2014
2015
SDImobilebatteryOPM
As a consequence of the value shift from component providers to SEC, the combined
market cap ratio of SEMCO and SDI vs. SECs market cap has decreased substantially.
We view that SECs hardware business was able to protect its profitability with aggressive
supply chain management, leveraging its scale, and we believe that continuous value shift
from its supply chains was one of SECs success drivers in the past.
(Wtn)
30%
300
250
25%
200
20%
150
15%
100
10%
50
5%
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
CheilIndustries
2002
SEMCO
2001
SamsungSDI
2000
0%
SEC
(SDI+SEMCO+Cheil)/SECmarketcapratio
Source: Datasream.
Source: Datasream.
35
36
Despite impressive growth for the past two decades, we believe SEC currently faces
structural challenges ahead which could potentially lower its earnings trajectory in
the long term. We now see twin challenges: (1) structural decrease in hardware
profits, and (2) marginal contribution from new growth drivers.
2,500
350
2,000
Samsung
300
Apple
1,500
ContentProvider
EntertainmentPlatform
1,000
Setmaker
500
Apple
250
200
ContentProvider
EntertainmentPlatform
Electroniccomponents
Electroniccomponents
EMS/OEM/ODM
Samsung
150
100
Semiexcl.memory
EMS/OEM/ODM
Setmaker
Semiexcl.memory
50
100%
100%
90%
90%
80%
70%
60%
80%
Samsung
Apple
70%
60%
EntertainmentPlatform
Apple
ContentProvider
ContentProvider
50%
Samsung
50%
EntertainmentPlatform
40%
Electroniccomponents
40%
Electroniccomponents
30%
EMS/OEM/ODM
30%
EMS/OEM/ODM
20%
Setmaker
Semiexcl.memory
20%
10%
10%
0%
0%
Setmaker
Semiexcl.memory
37
Exhibit 82: Global hardware market has entered the exgrowth phase
$mn
25%
900,000
OLEDTV
800,000
Tablet
Tablet
700,000
Smartphone
600,000
Cellphone
Smartphone
PC
Feature phone
500,000
LCDTV
400,000
PC
300,000
Globalhardwaremarkethas
enteredexgrowthphase
withdeceleratinggrowth
20%
15%
10%
5%
0%
5%
Gameconsole
10%
DVC
15%
DVD/BD
200,000
DSC
LCDTV
100,000
Hardwaremarketgrowth
CRTTV
2015
2016E
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
20%
40%
250%
200%
150%
100%
50%
0%
50%
PCmarketgrowth
LCDTVmarketgrowth
Smartphonemarketgrowth
Tabletmarketgrowth
38
(US$)
30%
2,000
250
25%
200
20%
150
15%
300
2,500
1,500
1,000
100
500
10%
50
5%
0
0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E
Handsetmarketshipment
HandsetmarketASP(RHS)
SEC'shandsetM/S
SEC'shandsetOPM
The TV market which entered the maturity stage earlier than handsets indicates the fact
that market share expansion does not always lead to margin enhancement at that stage.
Despite share gain in the global TV market, SECs TV profitability stayed around or below
the 5% level over the past 10 years, barring a short-lived hike in 2009 when SEC was able to
partially offset ASP erosion in light of introduction of LED TVs.
Exhibit 87: LCD TV market entered the maturity stage
earlier than handsets
Exhibit 88: While SEC has been able to gain market share
in TVs, its operating margin stayed around 5%
(mnunits)
(US$)
1,600
250
1,400
200
25%
20%
1,200
1,000
150
15%
800
100
600
10%
400
50
200
0
5%
0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E
LCDTVmarketshipment
LCDTVmarketASP(RHS)
SEC'sTVM/S
SEC'sTVOPM
39
Exhibit 89: SECs smartphone profitability has started to decrease rapidly with the
smartphone market maturing
Smartphone penetration (% of total handsets) and SECs smartphone OPM trend
90%
30%
80%
25%
70%
60%
20%
50%
15%
40%
10%
30%
20%
5%
10%
0%
0%
2010
2011
2012
2013
2014
2015
2016E
2017E
Smartphonepenetration(%oftotalhandsets)
SEC'ssmartphoneOPM(RHS)
Source: Company data, Gartner, Goldman Sachs Global Investment Research.
40
Others
90%
LCD
80%
AMOLED
70%
SystemLSI
60%
NAND
50%
DRAM
40%
65%
30%
Appliances
TV
Tablet
20%
PC
10%
Handset
0%
Source: Company data.
Secondly, the hardware product-cycle is heavily synced with the components business
profitability given the vertically integrated structure, with SECs hardware business being
one of the major customers for its own components business.
Exhibit 91: Hardware product cycle is highly correlated with components profitability
SECs hardware product-cycle and components business profitability
Upturnproductcycle
Component
profitability
Increasingcomponentutilizationrate
Lesspricingpressureoncomponents
Downturnproductcycle
Decreasingcomponent utilizationrate
Morepricingpressureoncomponents
Hardware productcycle
In this regard, we note that decreasing hardware profits will eventually lead to falling
margin for SEC, as a whole, becoming one of the major challenges for the company to
overcome to achieve sustainable earnings growth over the long term.
41
1)
Solar cells
Target set in 2010: Starting with crystalline solar cell module and expanding into
thin-film module, SEC wanted to make this business one of its main sales growth
drivers along with LED business. Targeted W6tn in accumulative investment and
W10tn in sales by 2020 while creating 10,000 jobs.
Progress as of 2015: SEC sold solar cell business to SDI for W161bn in 2011. SDI
exited the solar cell business in 2014 given intense competition as well as limited
competitiveness.
2)
LED
Target set in 2010: Expand business from LED BLU to lighting engine and
automotive LED. Targeted W8.6tn in accumulative investment and W17.8tn in
sales by 2020, while creating 17,000 jobs.
Progress as of 2015: After merging with SEMCOs LED division in 2012, SEC
halted its LED lighting product business (under Consumer Electronics (CE)
division) in 2014 and is currently focusing on LED modules and components
(under Device Solutions (DS) division). As of 2015, SECs LED business revenue is
around W1tn, 0.5% of total revenue for the year.
3)
xEV battery
Progress as of 2015: xEV battery is one of the main businesses of SDI currently.
SDI is the main battery provider for BMW's i3 and i8 xEV, and has also expanded
its customer base to major OEMs such as Volkswagen, Ford, and Chrysler. We
expect SDIs xEV battery revenue to reach W4.2tn in 2020E, far lower than its
initial target set in 2010.
4)
Medical devices
Target set in 2010: Expand business starting with in-vitro diagnostic medical
devices such as blood test device. Targeted W1.2tn in accumulative investment
and W10tn in sales by 2020, while creating 9,500 jobs.
42
5)
Biopharmaceuticals
Companies that initiated the business: SEC and Samsung Medical Center
Target set in 2010: Co-operate with Samsung Medical Center to enter the
biosimilar market. Targeted W2.1tn in accumulative investment and W1.8tn in
sales by 2020, while creating 710 jobs.
Progress as of 2015: SEC and its affiliates jointly established: (1) Samsung
BioLogics for contract manufacturing business (CMO) in 2011, and (2) Samsung
Bioepis for biosimilar business in 2012. SEC owns 47% stake and Samsung C&T
51% stake in Samsung BioLogics. Samsung BioLogics owns 91.2% of Samsung
Bioepis. Samsung BioLogics has been signing manufacturing contracts with
global biopharmaceutical companies such as Bristol-Myers Squibb and Roche,
while Samsung Bioepis has been working on commercializing biosimilar products.
In 2014, Samsung BioLogics and Samsung Bioepis generated W105bn and W76bn,
respectively, in sales.
Exhibit 92: Only xEV batteries and biopharmaceuticals have seen relatively better progress
Samsungs five new growth drivers by 2020 (announced in 2010)
Product
Solarcells
LED
xEVbatteries
Medicaldevices
Biopharmaceuticals
Initialmainaffiliate
Targetsetin2010
Progressasof2015
Note
Startingwithcrystallinesolarcellmoduleandexpanding
intothinfilmmodule,makeitoneofSEC'smainsales
NoactivityinthespaceafterSamsungSDI(SDI) SECtransferreditssolarbusinesstoSDIin2011,butSDIstruggledto
SamsungElectronics
growthdriveralongwithLEDbusiness.TargetW6tnin
exitedthebusinessin2014
maintainthebusinesswithhighcapexburdenandlowmargins
accumulativeinvestmentandW10tninsalesby2020.
Create10,000jobs.
SEChalteditsLEDlightingproductbusiness
ExpandbusinessfromLEDBLUtolightingengineand
SinceSamsungLEDmergingintoSECin2012,intensifiedglobal
SamsungElectronics,
(underCEdivision)in2014andcurrently
automotiveLED.TargetW8.6tninaccumulative
competitionandlowerglobalTVdemand,aswellasdomestic
investmentandW17.8tninsalesby2020.Create17,000
SEMCO
focusingonLEDmodulesandcomponents
regulationhaslimitedgrowthforthebusiness
jobs.
(underDSdivision)
SDIisthemainbatteryproviderforBMW'si3andi8electricvehicles,
TargetW5.4tninaccumulativeinvestmentandW12.2tn
CurrentlyoneofthemainbusinessesofSDI
andhasalsoexpandedcustomerbasetomajorOEMssuchas
SamsungSDI
insalesby2020.Create7,600jobs.
thatisdrivingcompanygrowth
Volkswagen,Ford,andChrysler
SamsungElectronics,
SamsungTechwin
SamsungMedisonhasnotperformedwellsincebeingacquiredby
Expandbusinessstartingwithinvitrodiagnosticmedical
Medicaldevicesbusinessiscurrentlyseparately
SECin2011mainlyduetohighR&Dcosts.Possibilityofmerger
devicessuchasbloodtestdevice.TargetW1.2tnin
runbyCEdivisionandSamsungMedison
betweenSEC'smedicaldevicebusinessandSamsungMedisonin
accumulativeinvestmentandW10tninsalesby2020.
(whichSECcurrentlyhas68%stake)
ordertocreatesynergyisconstantlybeinghighlightedbymedia.
Create9,500jobs.
SamsungElectronics, CooperatewithSamsungMedicalCentertoenterthe
SamsungMedical
biosimilarmarket.TargetW2.1tninaccumulative
Center
investmentandW1.8tninsalesby2020.Create710jobs.
SamsungBioLogicshasbeensigning
SECanditsaffiliatesjointlyestablishedSamsungBioLogicsin2011
manufacturingcontractswithglobal
biopharmaceuticalcompaniessuchasBristol andSamsungBioepisin2012.SECowns47%stakeandSamsungC&T
MyersSquibbandRoche,whileSamsung
51%stakeinSamsungBioLogics.SamsungBioLogicsowns91.2%of
Bioepishasbeenworkingoncommercializing
SamsungBioepis
biosimilarproducts
43
1)
IoT
For IoT, SEC plans to focus initially on Smart Homes and Smart Health, leveraging the
strength of its overall ecosystem. We also believe that SEC will be able to utilize its
competitive position as an integrated electronics company in the IoT market. As SEC
current holds a dominant share in major hardware markets including smartphones,
TVs, and appliances, it would be able to integrate each hardware device into one
ecosystem. In order to capture the solid growth opportunity, SEC has proactively
collaborated with global peers for platform compatibility as well.
Exhibit 93: Data flow under IoT, cloud, and big data ecosystem
Connected
"Things"
Hardware
Gateway
(Hub)
BigData
Cloud
IoTProtocols
Analytic
Smartphone
Smart devices
Thread
Hadoop
Saas
Wearables
MapReduce
Settopbox
Homes
Paas
AllJoyn
YARN
TV
Cars
Transactional
Industrial
Internet
Consortium
Cities
Iaas
MongoDB
Router
Hbase
Transportation
Industrial
CouchDB
Xaas
Open
Internet
Consortium
Appliances
Cassandra
Exhibit 94: Samsung is involved with the Thread, IIC, and OCF protocols for IoT
IoT protocols and main member companies
MainMemberCompanies
IoTProtocol
Thread
AllJoyn
(AllSeenAlliance)
IndustrialInternet
Consortium(IIC)
OpenConnectivity
Foundation(OCF)
NestLabs
(Google)
ARM
Qualcomm
NXP
Samsung
SiliconLabs
Yale
Security
Tyco
Qualcomm
LG
Sony
Electrolux
Haier
Microsoft
Canon
Sharp
Samsung
Dell
AT&T
Cisco
GE
Intel
IBM
SAP
Schneider
Electric
Samsung
Intel
Qualcomm
Microsoft
Electrolux
GE
Cisco
44
However, in our view, it is still unclear how SEC will monetize the IoT hardware
products, especially taking into account the structurally decreasing profitability for
conventional hardware as customers may not be willing to pay substantial premiums
for IoT products. Although SEC will be able to generate profits from components, we
believe the total addressable market for its components business from IoT will remain
relatively small.
Exhibit 95: Teardowns of existing IoT devices reveal substantial semiconductor content
Chips across IoT devices
Processing
Connectivity
Analog
Sensors
Semicontent
MPU/APU
IntegratedSoC
MCU
MCU(2)
ASIC
Bluetooth
WiFimodule
ZigBeeSoC
PowerSoC
Protectioncircuitmodule
Batterymanagement
Amplifier
USBcontroller
Audiocodec
Accelerometer
Gyroscope
Activitysensor
Altimeter
Camera
Heatsensor
Humiditysensor
Proximitysensor
Smokesensor
NikeFuelband
FitbitOne
Nest
SmartMeter
GearWatch
GoogleGlass
Note: Shading indicate that the specific semiconductor content is included in the device.
Source: iFixit, Company data, Goldman Sachs Global Investment Research.
Exhibit 96: SECs TAM for components business from IoT is likely to remain relatively
small
IoT semiconductor market outlook
(US$mn)
30,000
SEC'stargetTAM
willbe around
$16bnin2019,
34%of
semiconductor
salesin2015.
25,000
20,000
15,000
10,000
5,000
0
2014
2015
Othercommunications
Communications
ASSP
2016
2017
2018
Otherprocessing
Applicationprocessor
CMOSimagesensor
2019
Othersensing
ASIC
Source: Gartner.
45
2)
Wearable devices
Wearable devices (including smartwatches) share design-in and manufacturing
processes and component chains with conventional mobile hardware, where SEC
could utilize its competitive edge along with solid brand value. SEC has already
introduced Galaxy Gear series for smartwatch products. However, we project that
earnings contribution from wearable devices to be largely limited for the next several
years given premature market conditions currently and relatively small total
addressable market as well as likely intense competition. Although Gartner expects
wearable devices market size to reach around US$15bn in 2019, it will be only 10% of
SECs hardware sales in 2015.
Fitness
Wearables
13%
SEC'starget
TAMwillbe
around
$10bnin
2019, only
7%of
hardware
salesin2015.
2014
2015
2016
2017
2018
FitnessWearables
OtherWearables
SmartGlassesandHMD/cameras
SmartWatches
SmartWatches
37%
Other
Wearables
22%
2019
SmartGlasses
and
HMD/cameras
28%
Source: Gartner.
Source: Gartner.
3)
B2B
Given its high market share base in the B2C market currently, SEC is trying to expand
its core business territories from consumer markets to the enterprise segment to drive
another leg of secular growth. During its analyst day in 2013, SECs management
indicated that the company aims to increase its B2B revenue to US$100bn+ by 2020.
Samsung'sB2Bportfolio
Enterprisedevices(H/W)
Smartphone
LFD
Tablet
Printer
Enterprisesolutions(S/W)
Notebook PC
Network
Samsung
KNOX
SAFE
(Samsungfor
Enterprise)
Samsung
Solutions
Exchange
Samsung
MobileCare
Consulting &SystemIntegration
Enterprisecustomers
At CeBIT 2015 (a global exhibition for the IT industry), SEC launched a new B2B brand,
Samsung Business, which combines Knox, SECs security solution for mobiles,
enterprise mobility management, Smart Signage, and printing.
Goldman Sachs Global Investment Research
46
AttainGlobalB2BMarket Leadership
Vision
GTM
Strategy
Partnerdriven
Samsungled
VerticalSolution
Education
Core
Solutions
Healthcare
Finance
Retail
Public
Mfg
Hospitality
Prof svc
HorizontalSolution
Security
Collaboration
Virtualization
Mobility
B2B
EcoSystem
Partner Program
Process&System
Maintenance
Operation
B2B2C: Business to
Business to Consumer
is a business model
which combines
Business to Business
(B2B) and Business to
Consumer (B2C) for a
complete product or
service transaction
We think SEC has ample potential to leverage its expertise and accumulated experience in
conventional hardware businesses, especially in B2B2C. However, we foresee two major
hurdles that could prevent SEC from rapidly increasing its presence in the enterprise
solution business. First of all, compared with leading global companies in the B2B space,
SEC has relatively limited software and system integration capability, in our view. Although
SEC could leverage its affiliates such as Samsung SDS (SDS) to enhance software
capability, we do not think it still can be on par with global peers experience and expertise
in system integration and software. Secondly, and more importantly, SEC has very limited
experience and track record in the B2B market so far. When it comes to B2B, long-term
relationships with counterpart companies and track records in the enterprise solution space
are highly critical for sustainable growth. We believe lack of experience and track record in
B2B will remain a key hurdle for SEC in the medium term.
We believe that virtual reality (VR) and electronic components for automotives will become
potential candidates of new growth drivers for SEC on top of IoT, wearable devices, and
B2B. However, we believe that the total addressable market for VR (US$45bn by 2025E,
refer to GS report titled Profiles in Innovation: Virtual & Augmented Reality
Understanding the race for the next computing platform, dated January 13, 2016) will be
rather small for SEC. As for the automotive components business, limited track record and
lack of long-term relationships with automotive makers will likely remain key challenges for
SEC to achieve meaningful growth in the foreseeable future.
47
Exhibit 101: Global TMT M&A transaction volume on an upward trend since 2010
Global TMT M&A transaction volume (pending and completed)
(US$bn)
1,000
900
800
700
600
500
400
300
200
100
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Bloomberg.
Since 2010, SEC has announced a wide range of acquisitions of industries encompassing
medical equipment, OLED materials, IoT, set-top box, mobile payment, and even LED
display. However, we do not see a clear direction of its acquisitions given highly diversified
industries for the acquisitions. Although SEC does not disclose the transaction volume for
each acquisition, we believe its spending for M&A seems relatively insignificant,
considering its strong cash position.
Source: Bloomberg.
Company
YescoElectronics
LoopPay
Simpress
ProximalData
PrinterOn
Quietside
SmartThings
Novaled
Boxee
MOVL
Neurologica
NVELO
Nanoradio
mSpot
Nexus
Grandis
Medison
Prosonic
Business
CommercialLEDdisplay
Mobilewalletsolutions
Printingsolutions
Serversidecachingsoftware
Mobilecloudprintingsolutions
Airconditionerdistribution
Homeautomation
OLEDmaterials
Settopbox
TVappdevelopmentplatform
Medicalimaging/CTscanner
SSDcachingsoftware
Wirelesschip
Musicstreaming
Healthcareequipment
Thinfilmmemory
Ultrasonicmedicalequipment
Transducerprobesandcables
Announcedvalue(US$mn)
Undisclosed
Undisclosed
Undisclosed
Undisclosed
Undisclosed
Undisclosed
Undisclosed
347
30
Undisclosed
154
Undisclosed
Undisclosed
Undisclosed
Undisclosed
Undisclosed
251
39
48
1)
Exhibit 104: Samsung Group has sold non-core businesses such as defense and chemicals
Key changes in Samsung Groups business profile (as of March 2016)
InformationTechnology
Financials
Defense
Chemicals
Construction/shipbuilding
Others
SamsungElectronics
SamsungLife
SamsungTechwin
SamsungFineChem
SamsungC&T
CheilIndustries
SamsungSDS
SamsungF&M
SamsungThales
SamsungGeneralChem
SamsungHeavyIndustries
SamsungEverland
SamsungSDI
SamsungSecurities
SamsungTotal
SamsungEngineering
SEMCO
SamsungCard
SamsungBPChem
SamsungAsset
SDIChemical
HotelShilla
CheilWorldwide
S1
Credu
Note: Red crosses indicate that the company has been sold off to another company; Green crosses indicate that the company has merged with another Samsung
affiliate.
Source: Company data.
49
Event
9/23/2013
OldCheilIndustriesdecidestosellfashionbusinesstoSamsungEverlandforW1tn,completedonDec.1,
2013
9/27/2013
SamsungSDSdecidestomergewithSamsungSNS,mergerratiobeing1:0.4618115.Mergercompletedon
Dec.17,2013
11/4/2013
SamsungEverlanddecidestohandoverbuildingmanagementbusinesstoS1forW495bn.Assetsale
completedonJan.10,2014
11/4/2013
SamsungEverlanddecidestospinoffSamsungWelstory.CompletedonDec.1,2013
3/31/2014
SamsungSDIannouncedthatitwillmergewithOldCheilIndustriesviaastockswap.Theeffectiveexchange
ratiobetweenSDIandCheilwouldbe1:0.4425482,andtheofficialmergerdateJuly1,2014
4/2/2014
SamsungGeneralChemicaldecidestomergewithSamsungPetrochemical.Theeffectiveexchangeratio
betweenthetwowouldbe1:2.1441,andtheofficialmergerdateJune1,2014
7/4/2014
SamsungEverlanddecidestochangecompanynametoCheilIndustries
SamsungGroupaffiliatesdecidetoselltheir32.4%stakeinSamsungTechwintoHanwhaforW840bn.
11/26/2014 HanwhatoalsogetTechwin'sstakeinSamsungThales,SamsungGeneralChemical,andKoreaAerospace
Industries,aswellasSGC's50%stakeinSamsungTotal
11/26/2014
SamsungGroupaffiliatesdecidetosellacombined57.6%stakeinSamsungGeneralChemicaltoHanwha
ChemicalandHanwhaEnergyforW1.06tn
5/26/2015
CheilIndustriesandSamsungC&Tannouncedthattwocompanieshavedecidedtomerge.Theannounced
mergerratioisCheil:SamsungC&T1:0.3500885,andofficialmergerdateisSep.1,2015
8/28/2015
SamsungSDIdecidestobuySamsungFineChemicals'batterymaterialsbusinessforW18.7bn.Acquisition
coversSFC'sbatterymaterialR&Dfacilities,patentrights,humanresources,andsharesofSTM,aJVfounded
inMay2011producingcathodematerials.SDIalsodecidestosellits29.2%stakeinSamsungBPChemicals
10/30/2015
SamsungSDIannouncedthatitwillspinoffitschemicalbusinessintoaseparatecompany,andsella90%
staketoLotteChemicalforW2.3tn
10/30/2015
SamsungGroupdecidestosell31.5%stakeinSamsungFineChemicals(including49%stakeinSamsungBP
Chemicals)toLotteChemicalforW465bn
1/28/2016
SamsungLifeannouncedthatitwillbuy37.5%ofSamsungCardsharesfromSamsungElectronicstobecome
majorityshareholderofSamsungcardwith71.9%stake
2/25/2016
2/25/2016
InordertounwindtheadditionalcircularownershipcreatedfromtheSamsungC&TandCheilIndustries
merger,SamsungSDIannouncedthatitwillsell2.6%stakeinSamsungC&TforW765bn.Afterthesales,
SamsungSDIwillown2.1%stakeinSamsungC&T
Outofthe2.6%stakethatSamsungSDIisselling,JYLeeacquires0.7%stakeinSamsungC&TforW200bn,
whichincreaseshisstakeinthecompanyto17.2%.JYLeealsoboughtW30bnworthoftreasurysharesfrom
SamsungEngineering.SamsungLifePublicFoundationalsobought2mnshares(1%stake)inSamsungC&T
2)
50
Technology (SAIT). R&D teams in each division are focused on short-term projects and
commercializing products scheduled to hit the market within 1-2 years, while R&D
centers such as the DMC R&D Center target medium-term projects and SAIT focuses
on long-term R&D.
In order to eliminate redundant R&D projects, improve efficiency, and encourage faster
product cycles, SEC has recently reduced the size of the DMC R&D Center and SAIT,
while enhancing product development teams in each division as well as the role of
overseas investment and R&D bodies such as Global Innovation Center (GIC), Samsung
Strategy & Innovation Center (SSIC), and Samsung Research America (SRA). SSIC was
established in 2012 and GIC in 2013 to focus on finding investment opportunities for new
growth drivers in the components area (done by SSIC) and hardware area (done by GIC).
Some of the examples in the past include SSIC playing a key role in launching the IoT
development platform Artik in May 2015, and GIC in acquiring LoopPay in Feb 2015.
Meanwhile, in 2014, SEC disbanded the Media Solution Center that was focusing on
software and content development and shifted that role to on-site R&D teams in each
division. We believe SECs R&D strategy is shifting towards short-term R&D done by onsite teams in each division, while executing medium-to-long term R&D through SRA and
investments by SSIC and GIC in acquiring companies that have core technologies for
new product development.
51
Exhibit 106: R&D focus shifting to divisional onsite teams for short-term R&D and overseas for medium-to-long term R&D
SECs R&D structure
Domestic
Overseas
Personnelfrom
DMCR&DCenter
andSAITjoined
R&Dteam
Short
term
R&D
R&Dteanwithineach
businessunit
SEC DigitalMedia
ResearchCenter
R&Dteamwithineach
business unit
DMCR&DCenter
formedin2009
Mid
term
R&D
Relocating
personnel
SECDMCR&D Center
Creationof
newteam
SEC
Telecommunications
ResearchCenter
Long
term
R&D
IMdivisionR&Dteam
SamsungResearch
America
CEdivisionR&Dteam
SamsungResearchAmerica
Future Technologyteam
SAITdownsized
startingin2012by
relocating
researchersto
businessunits
SamsungAdvanced
Instituteof
Technology
IMdivisionR&Dteam
CEdivisionR&Dteam
SamsungStrategy&
InnovationCenter
DSdivisionR&Dteam
IT&Mobiledivision
Software
R&D
MSCwhichwas
underIM
division,was
disbandedin
2014
MediaSolution
Center
IT&Mobiledivision
PortionofMSCrelatedto
mobileproducts absorbed
intothemobiledivision
GlobalInnovation
Center
MSC'sBigDataCenter
integratedintoSoftware
Center
MediaSolutionCenter
AdvancedMaterialsLab
AdvancedPrintingSoftwareLab
AdvancedProcessorLab
B2BResearchLab
ComputingScienceInnovationCenter
DigitalMediaSolutionsLab
MobileInnovationLab
MobilePlatformandSolutionsLab
MobileProcessorInnovationLab
NextExperienceDisplayLab
SmartThingsInnovationsLab
SRADallas
ThinkTankTeam
VisualDisplayLab
Establishedin2012 toleadM&As
Focusoncomponents
UndersupervisionofDSdivision
Establishedin2013to leadM&As
Focusonsoftwareandsetproducts
UndersupervisionofSamsungHQ
MediaSolutionCenter
America(MSCA)remains
intactunderSamsung
ElectronicsAmerica
*IM:IT&MobileCommunications;CE:ConsumerElectronics;DS:DeviceSolutions;MSC:MediaSolutionsCenter;DMC:DigitalMedia&Communications
3)
Shareholder-friendly initiatives
SEC has recently started showing willingness to improve shareholder return. In
October 2015, SEC announced a special shareholder return program which includes a
share buyback and cancellation totaling W11.3tn. The special share buyback program
will be implemented in three to four stages and completed within one year. More
importantly, SEC announced its medium-term shareholder return policy (2015-2017) in
October 2015 which states that: 1) the company will return 30%-50% of annual free
cash flow (FCF) to shareholders for the next three years, 2) shareholder return will
include dividends and share buybacks with cancellation, and 3) the next three years
annual shareholder return will focus primarily on dividends.
We believe that SECs announcement of the medium-term shareholder return policy
clearly indicates that: 1) management has confidence in SECs sustainable growth over
the medium/long term and 2) the company will continue to consider its FCF allocation
not only for SECs long-term growth but also for enhancing shareholder value.
52
Hardware-as-a-platform scenario
Hardware-as-a-platform scenario
53
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
22,201 20,480 23,540 29,274 34,165 34,259 35,454 37,383 39,807 41,550 42,622 43,445 44,146 44,763 45,744
13,378 12,225 13,997 19,699 22,709 20,450 20,834 21,855 22,664 23,310 23,776 24,128 24,350 24,642 25,221
8,823 8,255 9,542 9,576 11,456 13,809 14,620 15,528 17,143 18,240 18,846 19,317 19,796 20,121 20,523
8,199 10,424 13,112 20,204 26,283 33,264 41,778 52,303 63,810 77,210 92,651 109,329 126,821 145,845 167,721
3,037 4,853 7,841 11,418 17,149 27,357 38,868 54,399 75,071 99,844 125,804 157,255 191,851 232,139 278,567
1.47 1.04 0.98 0.93 0.76 0.51 0.42 0.35 0.30 0.25 0.21 0.18 0.16 0.14 0.13
2.62 1.51 1.11 0.80 0.59 0.42 0.31 0.24 0.19 0.15 0.12 0.10 0.09 0.07 0.06
12%
22%
10%
8%
9%
6%
15%
14%
16%
24%
41%
0%
17%
15%
20%
0%
10%
21%
3%
2%
6%
5%
5%
6%
6%
4%
10%
4%
3%
6%
3%
2%
3%
2%
1%
3%
2%
1%
2%
1%
1%
2%
2%
2%
2%
50%
80%
27%
60%
26%
62%
54%
46%
30%
50%
27%
60%
26%
42%
25%
40%
22%
38%
21%
33%
20%
26%
18%
25%
16%
22%
15%
21%
15%
20%
46%
29%
6%
5%
18%
33%
19%
16%
15%
15%
15%
14%
13%
12%
11%
36%
42%
26%
28%
26%
29%
25%
24%
20%
20%
18%
18%
16%
16%
15%
4,804 2,825 6,268 10,208 12,368 10,637 11,043 12,038 12,564 12,552 12,304 11,767 11,150 10,676 10,251
2,971 1,813 4,149 8,444 10,609 7,734 7,698 8,370 8,351 8,069 7,499 6,842 6,102 5,546 5,018
1,833 1,011 2,120 1,764 1,759 2,903 3,345 3,668 4,213 4,483 4,805 4,925 5,047 5,130 5,233
22%
14%
27%
35%
36%
31%
31%
32%
32%
30%
29%
27%
25%
24%
22%
22%
15%
30%
43%
47%
38%
37%
38%
37%
35%
32%
28%
25%
23%
20%
21%
12%
22%
18%
15%
21%
23%
24%
25%
25%
25%
25%
25%
25%
25%
Although Chinese companies continue to seek entry into the semiconductor market, with
encouragement from the Chinese government, we think it will be tough for them to emerge
as competitive players in the memory market over the long term. Given very high entry
barriers in terms of design-in as well as manufacturing technology, capital alone is not a
sufficient factor for new entrants to become successful in the semiconductor market, but is
one of the various factors, in our view. We believe that parameters to successfully enter the
semiconductor industry include: (1) IP pools, (2) design-in technology (for IDMs), (3)
manufacturing technology (for IDMs and foundries), (4) customer base, and (5) capital. In
54
our view, previous examples of Chinese companies forays into the foundry industry
indicate that investment without proper technology, IP, and customers could result in a
sub-par performance in the semiconductor industry. In this regard, although Chinese
companies continue to show interest in the memory market, we believe it would be difficult
for new entrants to produce high-end memory chips without: (1) collaboration with major
memory companies; or (2) proper acquisition of IP pools from existing major memory
companies.
Given its competitive position, SECs memory will likely generate healthy earnings in the
long term although profitability will gradually decrease given slowing market growth for
both DRAM and NAND. In case of System LSI, we project SEC will improve its profitability
in the foreseeable future given improving utilization rates. However, sustainable long-term
profitability of SECs LSI business will likely remain far lower than TSMC, a leading
company in foundry, as a consequence of weaker customer base as well as scale.
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
36.99
22.71
13.38
8.82
0.51
10.94
34.89
20.86
12.23
8.26
0.38
13.46
2012
37.44
23.71
14.00
9.54
0.17
13.73
2013
39.72
29.32
19.70
9.58
0.05
10.40
2014
47.59
34.29
22.71
11.46
0.13
13.30
2015
48.00
34.28
20.45
13.81
0.02
13.72
49.31
35.47
20.83
14.62
0.02
13.84
51.37
37.40
21.86
15.53
0.02
13.97
54.91
39.83
22.66
17.14
0.02
15.08
57.71
41.57
23.31
18.24
0.02
16.14
59.75
42.64
23.78
18.85
0.02
17.11
61.43
43.46
24.13
19.32
0.02
17.96
62.85
44.16
24.35
19.80
0.02
18.68
64.03
44.78
24.64
20.12
0.02
19.24
65.58
45.76
25.22
20.52
0.02
19.82
6.33
4.84
2.97
1.83
0.03
1.49
4.17
2.84
1.81
1.01
0.01
1.38
6.88
6.28
4.15
2.12
0.01
0.60
8.78
10.21
8.44
1.76
0.00
(1.43)
12.79
12.36
10.60
1.76
(0.00)
0.43
11.16
10.64
7.73
2.90
0.00
0.53
11.95
11.04
7.70
3.35
0.00
0.91
13.17
12.04
8.37
3.67
0.00
1.13
13.92
12.56
8.35
4.21
0.00
1.36
14.17
12.55
8.07
4.48
0.00
1.61
14.02
12.30
7.50
4.81
0.00
1.71
13.56
11.77
6.84
4.93
0.00
1.80
13.02
11.15
6.10
5.05
0.00
1.87
12.60
10.68
5.55
5.13
0.00
1.92
12.23
10.25
5.02
5.23
0.00
1.98
17%
21%
22%
21%
7%
14%
12%
14%
15%
12%
4%
10%
18%
26%
30%
22%
6%
4%
22%
35%
43%
18%
2%
-14%
27%
36%
47%
15%
-1%
3%
23%
31%
38%
21%
2%
4%
24%
31%
37%
23%
2%
7%
26%
32%
38%
24%
2%
8%
25%
32%
37%
25%
1%
9%
25%
30%
35%
25%
1%
10%
23%
29%
32%
25%
1%
10%
22%
27%
28%
25%
1%
10%
21%
25%
25%
25%
1%
10%
20%
24%
23%
25%
1%
10%
19%
22%
20%
25%
1%
10%
55
2011
2012
2013
2014
4,350 9,486 12,660 9,441
4,350 9,486 12,660 9,158
283
451 918 1,353 1,397
451 918 1,353 1,379
18
8,711 9,171 8,545 6,417
8,711 9,171 8,545 6,307
14,809
631 2,182 2,711 383
631 2,182 2,711 380
3
15%
23%
21%
4%
15%
23%
21%
4%
1%
166%
166%
118%
118%
33%
33%
25%
28%
338%
338%
104%
104%
47%
47%
3%
2%
37%
37%
5%
5%
7%
7%
25%
26%
2015
12,553
10,482
2,071
1,758
1,582
176
6,313
5,857
10,416
1,360
1,319
41
11%
13%
2%
2016E
15,569
10,587
4,982
2,569
1,927
642
5,049
4,578
6,463
1,924
1,326
598
12%
13%
12%
2017E
16,606
10,295
6,310
3,304
2,214
1,090
4,188
3,875
4,822
2,259
1,250
1,010
14%
12%
16%
2018E
19,254
10,590
8,665
4,576
2,837
1,739
3,507
3,111
4,153
2,908
1,435
1,473
15%
14%
17%
2019E
23,091
10,961
12,130
6,305
3,262
3,043
3,052
2,800
3,322
4,177
1,485
2,691
18%
14%
22%
2020E
27,469
10,972
16,497
8,457
3,589
4,868
2,707
2,548
2,824
4,486
1,278
3,207
16%
12%
19%
2021E
32,678
10,901
21,776
11,178
3,876
7,303
2,436
2,344
2,485
4,497
1,061
3,436
14%
10%
16%
2022E
38,185
10,747
27,438
14,332
4,108
10,224
2,220
2,180
2,237
4,396
837
3,559
12%
8%
13%
2023E
43,780
10,607
33,173
17,604
4,314
13,291
2,072
2,049
2,080
4,715
722
3,993
11%
7%
12%
2024E
48,009
10,590
37,419
20,435
4,486
15,949
1,958
1,967
1,955
4,875
721
4,154
10%
7%
11%
2025E
51,295
10,380
40,916
22,938
4,580
18,357
1,864
1,888
1,857
5,148
606
4,542
10%
6%
11%
33%
14%
631%
26%
15%
868%
2%
7%
30%
24%
1%
141%
46%
22%
265%
20%
22%
38%
7%
3%
27%
29%
15%
70%
17%
15%
25%
16%
3%
37%
38%
28%
59%
16%
20%
14%
20%
3%
40%
38%
15%
75%
13%
10%
20%
19%
0%
36%
34%
10%
60%
11%
9%
15%
19%
1%
32%
32%
8%
50%
10%
8%
12%
17%
1%
26%
28%
6%
40%
9%
7%
10%
15%
1%
21%
23%
5%
30%
7%
6%
7%
10%
0%
13%
16%
4%
20%
6%
4%
6%
7%
2%
9%
12%
2%
15%
5%
4%
5%
97%
84%
68%
62%
55%
47%
40%
33%
28%
24%
22%
20%
3%
17%
32%
38%
45%
53%
60%
67%
72%
76%
78%
80%
2.35 1.78 1.41 1.24 1.33 1.19 1.11 1.06 1.03 1.02 0.99 0.98
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
29.23
4.35
24.88
33.02
9.49
23.53
2012
29.84
12.66
17.18
25.73
9.44
16.29
27.49
12.55
14.94
27.84
15.57
12.27
28.50
16.61
11.90
30.41
19.25
11.16
33.69
23.09
10.60
37.54
27.47
10.07
42.24
32.68
9.57
47.27
38.18
9.09
52.41
43.78
8.63
56.21
48.01
8.20
59.09
51.30
7.79
(0.39)
0.63
(1.02)
3.22
2.18
1.04
2.98
2.71
0.27
0.67
0.38
0.29
2.29
1.36
0.93
1.12
1.92
(0.80)
2.38
2.26
0.12
3.21
2.91
0.30
4.07
4.18
(0.11)
4.28
4.49
(0.20)
4.21
4.50
(0.29)
4.12
4.40
(0.27)
4.46
4.71
(0.26)
4.63
4.87
(0.25)
4.91
5.15
(0.23)
10%
23%
4%
10%
21%
2%
8%
14%
1%
11%
15%
3%
12%
18%
-1%
11%
16%
-2%
10%
14%
-3%
9%
12%
-3%
9%
11%
-3%
8%
10%
-3%
8%
10%
-3%
-1%
15%
-4%
2013
2014
3%
4%
2%
2015
8%
11%
6%
4%
12%
-7%
1)
56
screen smartphones (starting from Galaxy Note), (3) relationships with operators
strengthening from the feature phone era, (4) hardware differentiation via in-house
supply of core components such as semiconductors and AM OLED panels, and (5)
scale that allows for more aggressive marketing strategies compared with other OEM
manufacturers.
At this stage, SEC provided consumers with a variety of models in terms of hardware
specifications as well as price points, making itself a department store for Android
smartphones. Given the early stage of its product cycle, entry barriers of the
smartphone industry remained relatively high, leading to limited competition in the
Android camp. SEC became the largest smartphone maker globally in 2012 (source:
Gartner) and the company continues to maintain its leading market share globally.
Exhibit 111: SECs flagship models in the first phase
(mnunits)
35
GalaxyS
launched
30
25
GalaxyNote
launched
GalaxyS4
launched
GalaxyNote 3
launched
GalaxyS3
launched
GalaxyS2
launched
20
GalaxyNote 2
launched
15
10
5
0
1Q10
3Q10
GalaxyS
GalaxyNote2
1Q11
3Q11
GalaxyS2
GalaxyS4
1Q12
3Q12
GalaxyNote
GalaxyNote3
1Q13
3Q13
GalaxyS3
2)
57
(mnunits)
GalaxyNote 4
launched
25
GalaxyS6edge+and
Note5 launched
GalaxyS6 andS6
edge launched
GalaxyS5
launched
20
15
10
5
0
1Q14
2Q14
GalaxyS5
GalaxyS6edge
3Q14
4Q14
1Q15
GalaxyNote4
GalaxyS6edge+
2Q15
3Q15
4Q15
GalaxyS6
GalaxyNote5
Exhibit 113: SEC has been reducing the number of available smartphone models
Number of announced SEC smartphone models by year
(#ofmodels)
80
70
60
50
40
30
20
10
0
2010
2011
2012
2013
2014
2015
Source: GSMArena.
3)
58
Exhibit 114: Our VR/AR shipment assumptions vs. the smartphone and tablet ramp-up
800,000
Unitshipments(000's)
700,000
Smartphoneshipments
from20042012
600,000
500,000
400,000
Accelerated
uptake
300,000
200,000
100,000
Tabletshipments
from20102016E
Basecase
Delayeduptake
0
2015
2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Basecase
Bearcase
Smartphoneshipments
Bullcase
Tabletshipments
59
payment solutions which solely rely on NFC technology. Accordingly, we view that
Samsung Pay will potentially be one of the factors which prevents consumers from
switching to other smartphones, up to some extent. However, as we believe that other
factors such as hardware features and pricing points are more important when
consumers select smartphones, the lock-in impact from Samsung Pay will be largely
limited.
60
2011
31,304
16,312
9,492
5,500
6,380
4,573
1,318
489
20%
28%
14%
9%
96
32
33
30
2012
73,738
45,918
13,465
14,356
18,324
13,419
2,664
2,241
25%
29%
20%
16%
213
81
52
80
2013
105,668
72,573
12,804
20,290
23,605
19,184
1,655
2,767
22%
26%
13%
14%
320
133
45
142
2014
86,263
54,772
10,266
21,226
13,523
10,898
1,197
1,428
16%
20%
12%
7%
316
105
41
171
2015
84,336
50,424
10,109
23,804
9,600
7,535
788
1,276
11%
15%
8%
5%
320
86
36
198
2016E
83,173
48,284
9,953
24,937
8,917
6,880
630
1,406
11%
14%
6%
6%
319
81
34
203
2017E
76,063
43,243
8,912
23,908
5,632
5,065
403
164
7%
12%
5%
1%
311
74
32
205
2018E
72,570
39,947
7,659
24,965
3,895
4,140
230
(475)
5%
10%
3%
2%
308
69
28
211
2019E
67,070
36,036
7,057
23,976
3,016
3,402
71
(457)
4%
9%
1%
2%
298
64
26
207
2020E
61,221
32,159
6,503
22,559
2,238
2,736
(68)
(430)
4%
9%
1%
2%
285
59
25
201
2021E
55,295
28,386
6,118
20,791
1,404
2,147
(127)
(617)
3%
8%
2%
3%
271
54
24
193
2022E
50,034
25,057
5,816
19,161
702
1,656
(181)
(774)
1%
7%
3%
4%
257
49
23
185
2023E
44,934
21,874
5,585
17,475
(27)
1,235
(174)
(1,088)
0%
6%
3%
6%
244
44
23
178
2024E
40,286
19,096
5,419
15,771
(797)
707
(169)
(1,335)
2%
4%
3%
8%
231
40
22
169
2025E
36,162
16,671
5,257
14,233
(1,407)
286
(164)
(1,530)
4%
2%
3%
11%
218
36
22
160
34%
35%
32%
296
457
260
164
38%
24%
37%
307
501
229
160
42%
14%
44%
302
498
260
131
33%
13%
54%
259
498
240
118
27%
11%
62%
233
521
247
106
26%
11%
64%
217
495
242
102
24%
10%
66%
204
487
233
97
22%
9%
69%
196
480
230
98
22%
9%
69%
188
466
223
97
21%
9%
70%
179
452
216
94
20%
9%
71%
170
438
212
90
19%
9%
72%
162
425
208
86
18%
9%
73%
153
412
206
82
17%
10%
73%
146
400
204
78
16%
10%
74%
138
388
202
74
290%
121%
824%
378%
19%
5%
6%
33%
123%
152%
59%
163%
4%
10%
12%
2%
50%
64%
14%
77%
2%
1%
14%
18%
1%
21%
10%
21%
14%
0%
8%
10%
1%
18%
11%
16%
10%
5%
3%
10%
0%
5%
5%
2%
7%
5%
2%
4%
2%
9%
7%
1%
6%
2%
4%
5%
1%
6%
13%
3%
4%
1%
1%
2%
3%
7%
5%
2%
4%
3%
3%
2%
4%
8%
5%
3%
5%
3%
3%
3%
5%
9%
4%
4%
5%
3%
2%
4%
5%
9%
3%
4%
5%
3%
2%
4%
5%
10%
3%
4%
5%
3%
1%
5%
6%
10%
2%
5%
5%
3%
1%
5%
6%
10%
2%
5%
5%
3%
1%
5%
61
2012
2013
2014
67.44
62.56
50.72
8.96
2.89
105.84
101.64
87.79
7.58
6.28
138.82
134.57
112.26
8.89
13.42
111.76
107.41
89.78
7.02
10.61
4.88
47.02
34.80
12.22
4.20
48.31
34.11
14.20
4.25
50.31
33.36
16.95
4.35
50.19
32.45
17.74
8.15
8.00
7.87
0.16
(0.03)
19.41
19.31
18.92
0.21
0.19
24.96
24.78
23.87
0.17
0.74
14.56
14.43
13.64
0.36
0.43
0.15
1.39
1.31
0.08
0.10
2.33
1.98
0.35
0.18
1.67
1.39
0.28
0.13
1.19
1.02
0.17
12%
13%
16%
2%
-1%
18%
19%
22%
3%
3%
18%
18%
21%
2%
6%
13%
13%
15%
5%
4%
3%
3%
4%
1%
2%
5%
6%
2%
4%
3%
4%
2%
3%
2%
3%
1%
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
103.56
100.51
86.99
5.80
7.71
0.01
0.01
3.05
46.90
29.22
17.68
2015
101.55
98.37
85.35
5.88
7.04
0.09
0.09
3.19
50.14
31.54
18.60
93.92
90.62
77.90
5.91
6.59
0.23
0.23
3.30
51.98
32.65
19.32
90.08
86.66
74.12
5.71
6.44
0.39
0.39
3.42
54.11
34.27
19.83
82.75
79.23
67.07
5.54
5.99
0.63
0.63
3.52
55.87
35.65
20.23
76.53
72.93
61.22
5.37
5.57
0.77
0.77
3.59
57.05
36.72
20.33
70.32
66.65
55.30
5.21
5.23
0.91
0.91
3.67
57.88
37.45
20.43
64.80
61.06
50.03
5.06
4.92
1.05
1.05
3.74
58.36
37.82
20.53
59.42
55.64
44.93
4.90
4.67
1.13
1.13
3.78
58.80
38.20
20.60
54.53
50.71
40.29
4.76
4.44
1.23
1.23
3.81
59.24
38.58
20.66
50.15
46.30
36.16
4.61
4.22
1.31
1.31
3.85
59.69
38.97
20.72
10.13
9.97
9.64
0.13
0.19
0.01
0.01
0.16
1.25
0.99
0.26
9.17
9.11
8.86
0.07
0.11
0.06
0.06
0.06
2.47
2.04
0.42
5.85
5.78
5.46
0.07
0.09
0.16
0.16
0.07
2.23
1.80
0.43
4.09
4.01
3.59
0.07
0.09
0.27
0.27
0.08
2.02
1.61
0.41
3.58
3.51
3.02
0.03
0.03
0.43
0.43
0.07
1.12
0.71
0.40
2.82
2.78
2.24
0.01
0.01
0.52
0.52
0.04
0.94
0.73
0.20
2.08
2.04
1.40
0.01
0.01
0.62
0.62
0.04
0.95
0.75
0.20
1.35
1.31
0.70
(0.05)
(0.05)
0.71
0.71
0.04
0.96
0.76
0.21
0.55
0.54
(0.03)
(0.10)
(0.09)
0.75
0.75
0.02
0.48
0.38
0.10
(0.14)
(0.16)
(0.80)
(0.10)
(0.09)
0.82
0.82
0.02
0.49
0.39
0.10
(0.70)
(0.72)
(1.41)
(0.09)
(0.08)
0.86
0.86
0.02
0.49
0.39
0.10
9%
9%
10%
1%
2%
69%
2%
5%
6%
2%
6%
6%
7%
1%
1%
68%
2%
4%
6%
2%
5%
5%
5%
1%
1%
68%
2%
4%
5%
2%
4%
4%
4%
1%
1%
68%
2%
2%
2%
2%
4%
4%
4%
0%
0%
68%
1%
2%
2%
1%
3%
3%
3%
0%
0%
68%
1%
2%
2%
1%
2%
2%
1%
-1%
-1%
67%
1%
2%
2%
1%
1%
1%
0%
-2%
-2%
67%
1%
1%
1%
1%
0%
0%
-2%
-2%
-2%
66%
1%
1%
1%
1%
-1%
-2%
-4%
-2%
-2%
66%
1%
1%
1%
1%
10%
10%
11%
2%
3%
68%
5%
3%
3%
1%
2016E
(Wtn)
300
Others
250
Appliances
200
TV
Mobileservice
150
Tablet
100
PC
50
Handset
LCD
AMOLED
2025E
2024E
2023E
2022E
2021E
2020E
2019E
2018E
2017E
2015
2016E
2014
2013
2012
2011
2010
50
SystemLSI
40
Others
35
Appliances
30
TV
25
Mobileservice
20
Tablet
15
PC
10
Handset
LCD
AMOLED
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
(Wtn)
SystemLSI
62
Symbian
0.1%
BlackBerry
0.3%
Tizen Others
0.1% 0.2%
Tizen
0.3%
iOS
15.9%
Android
81.6%
Source: Gartner.
Android
99.7%
Source: Gartner.
On the other hand, Apple (covered by Simona Jankowski) has successfully established its
own OS which exclusively operates on Apples devices. In the following section, we
analyze Apples success in establishing the platform with its own OS so as to figure out the
key differences between SEC and Apple on this front.
We believe Apples success in the most recent decade has been primarily driven by the power
of its unified platform and the associated customer switching costs, with the hardware devices
serving primarily as platform delivery mechanisms. Apples unified platform model has created
a loyal and active installed base with steadily increasing switching costs that have shielded
Apple from the forces of hardware commoditization that generally impact consumer electronics
and personal computing markets. Not only does Apple own its OS but the company has used it
to create a platform that has accumulated user content. Users stick with the iPhone because
Apple has all their photos, music, apps, contacts, iMessage, etc and that content is shareable
across Apple devices such as iPhone, iPad, Mac. One of the key advantages of owning their OS
is that the vast majority of iPhone users run the same version, and the lack of fragmentation
makes it much easier for developers.
Apples OS can be largely divided into two versions: (1) OS X (for Apples traditional Mac
products); and (2) iOS (for iPhone, iPod touch and iPad). Although Apples platform
generally refers to Apples software with an OS X based heritage and attachment to iTunes
and/or the App Store, the most significant transformation occurred within the iOS sub
platform. iOS itself is a derivative of OS X, and both share the same UNIX and processoragnostic roots. The primary differences between iOS and the heritage OS X are that the
former is designed specifically for the needs of mobile devices, its GUI is based on a
touchscreen interface, and its application base is largely derived from Apples App Store.
From an economic perspective, OS X and iOS are similar enough beneath the surface to
share a common R&D pool.
63
Programmedin
OSfamily
Initialrelease
Supportedplatforms
Kerneltype
Defaultuserinterface
LicenseProprietary
iOS
C,C++,ObjectiveC
MacOSX/UNIXlike
June29,2007
ARM(iPhone,iPodTouch,iPad)
Hybrid(Darwin)
CocoaTouch(multitouch,GUI)
ProprietaryEULA
MacOSX
C,C++,ObjectiveC
MacOSX/UNIX
March24,2001
IA32,x8664
Hybrid(basedonMachmicrokernel)
Graphical(Aqua)
ProprietaryEULA
In the traditional hardware model, value tends to flow to the platform vendors. For instance,
in the Wintel PC market, majority of value went to the platform vendors such as Microsoft
and Intel. In rare instances, however, a hardware vendor could control both the
development of the hardware and the underlying software platform. This has been the case
in the gaming console market, and within the enterprise, it was also the case for the
mainframe and UNIX server vendors.
From an economic perspective, a hardware vendor leveraging a unified platform model
differs from a traditional hardware vendor in two key respects: (1) switching costs for
unified platform customers tend to be fairly significant, and (2) the unified platform vendor
can tightly integrate both hardware and software innovations under one corporate
umbrella. In the end, these factors could result in higher profit margins, as leading unified
hardware vendors can reduce product prices at a slower rate than the underlying
commodity component costs decline. Furthermore, hardware and software innovations
can be developed in lock step, leading to far more efficient R&D usage and faster
innovation cycles. These economic advantages can be magnified significantly in a rare case
where a vendor can link and leverage one platform into multiple hardware categories;
notably, Apple appears to be one of the first vendors to accomplish this in several sizeable
markets.
In the early days of the iPod, many believed it was only a matter of time before the device
would become commoditized. After all, the iPod was made up of industry-standard
components available to all of the competition. Clearly Apples design and user interface
prowess served as a barrier to entry, but it seemed clear that this was a very finite
advantage in a nascent market. Nevertheless, considering the fact that Apples platform
(the iTunes Music Store at the time) vastly increased an iPod customers switching costs
and added unmatched functionality, the skeptics concerns disintegrated fairly rapidly.
Many thought the iPods success was not repeatable. But in later years, Apple leveraged
the success of the iPod to enable the iPhone to rapidly capture share in the highly
competitive mobile phone market, despite the fact that Apple had very little expertise in
telephony. Finally, and perhaps most importantly, a fully established App Store and iTunes
media store enabled the iPad to penetrate the traditional mobile computing market at a
pace far exceeding most expectations.
By attaching high-quality hardware devices onto its well-established software and content
platform, we believe Apple was able to disrupt previously untapped mobile computing and
entertainment markets almost instantaneously. The platform also allows Apple to take a
disproportionate share of the various segment profit pools it participates in, while its
hardware competitors face ever-growing forces of commoditization. We believe it is
important to remember that the power of Apples platform delivers a turbo boost to the
profit and market share trajectory of its hardware devices. In addition, the platform and
loyal installed base gives Apple a margin of error on new product innovations; if a new
product has flaws, users rarely exit the platform and this provides Apple with a buffer
Goldman Sachs Global Investment Research
64
period to make critical improvements. We believe this buffer also fuels Apples risktolerance for bold innovations.
In conclusion, we believe that Apples unique platform-centric business model has
provided the company with several key advantages. Apples platform allows the company
to tap new product categories on the back of customers familiarity and loyalty to the
platform. Moreover, the platform produces increasing switching costs for customers, and
also erects additional barriers to entry for competitors.
We view the retention of its own platform has resulted in diverging performances for SEC
and Apple in terms of market share as well as profitability. While SECs smartphones
started to show decreasing share with falling profitability from 2014, Apple continues to
maintain relatively stable share as well as margin trends.
35%
40%
30%
35%
25%
30%
25%
20%
20%
15%
15%
10%
10%
5%
5%
0%
2010
2011
2012
Samsung
2013
2014
2015
0%
2010
2011
2012
2013
SamsungsmartphoneOPM
Apple
Source: Gartner.
2014
2015
AppleOPM
Source: Gartner.
We believe this could be attributed to the fact that SECs smartphones have little
differentiating factors as compared with other Android phone makers without its own
software and OS, as the smartphone market increasingly matures. In the case of Apple, the
company successfully secures customers with its ecosystem/brand loyalty and
implicit/explicit switching costs. Indeed, we think Apples iOS has been a good example of
a virtuous platform cycle, unlike SECs own OS including Bada.
Exhibit 125: Vicious platform cycle
Installedbase
stagnation
Installedbase
growth
Retainexisting
usersandattract
newusers
Attractcontentand
developers
Moreplatform
differentiation
Loseexistingusers
and/orfailtodraw
newusers
Lessattractivefor
contentand
developers
Commoditization
andprice
competition
65
Exhibit 126: A series of launches and terminations of SECs software services and OS
Started integrated
SamsungHub
serviceinGS4
Contents and
softwares
Discontinued
SamsungBooks
andSamsung
Video
ChatON
introducedatIFA
2011
Mobile
messenger
OSfor
smartphones
Milk Music,a
streamingradio
service,is
launched
BadaOSofficially
announced
FirstBadaOS
basedphone
released
October
2009
April
2010
ChatON service
discontinued
worldwide
Announced
intentiontomerge
BadawithTizen
Sep.
2011
June
2012
FirstTizenbased
phone(SamsungZ)
wasreleasedin
Russia
Badadevelopment
discontinued
Feb.
2013
April
2013
March
2014
June
2014
SamsungPay
launched inthe
UnitedStates
SamsungPay
launchedinKorea
Launched
Socializer
Messengerapp
ReleasedTizen
basedSamsungZ1
intheIndian
market
Nov.
2014
January
2015
March
2015
Discontinued
SamsungMusic;To
focusonMilk
Music
ReleasedTizen
basedSamsungZ3
intheIndian
market
August
2015
Sep.
2015
Sep.
2015
October
2015
October
2015
66
45,000
40,000
35,000
30,000
19,512,
(48%)
25,000
20,000
15,000
10,000
5,000
21,015,
(52%)
We estimate
aboutathird
areinvolvedin
thesmartphone
business
Korea
Overseas
0
Samsung(Software)
Google(R&D)
Explanation
*cancapture100imagesin4secondsandcanbeusedtomakecollageeffect
*captureseveralimagesandcanremoveunwantedbackgroundobjects/people
*hoverandtouch;similartoSPen
*9languages;candospeechtotext,texttospeech,andpicturetotext/speech
*adjusttodifferentvideocontentforoptimalpicture
*picturesautomaticallystoredintoalbums
*simplifiedversionofSVoiceforusewhendriving(calls,text,weather,etc)
*touchfunctionalityworksevenwithgloves
*canseparatepersonalandworkcontentanddata
*canlinkupto8devicestocreatestereoeffectforcontent
*canperformsimpletaskswithouttouchingthescreen
*withaccessoriescantracksimplehealthmetricssuchasweight,heartrate
*canputselfinphotos/videosthroughsecondcamera
*videopauseswheneyesmoveawayfromscreen
67
Explanation
*addssecuritybyunlockingthephonewithfingerprints
*canseparatepersonalandworkcontentanddata
*combinesWiFiand4Gconnectivitytoprovideextrabandwidthanddownloadspeed
*includesGreyscalemodethatswitchesoffphonedisplay'scolortosavebatterylife
*aggregatescustomizednewscontent
*Samsung'schatapplication
*10languages;candospeechtotext,texttospeech,andpicturetotext/speech
*withaccessoriescantracksimplehealthmetricssuchasweight,heartrate
*canopenappsandcallpeoplewithvoicecommand
*setsremindersaboutTVshowsandletsthephoneactasauniversalremote
*canmultitaskwithtwoseparatewindows
*hoverandtouch;similartoSPen
*candefocusthebackgroundandkeepthesubjectinplacewhentakingaphoto
*storesseveralvariantsofphotostochoosefrom
Exhibit 131: Samsung smartphone users spend much less time on Samsung Apps (about 9
mins) compared with Google Apps
Average minutes spent per month per Galaxy S4 user for select apps (2014)
YouTube
GoogleSearch
GooglePlayStore
SamsungLink
SamsungHub
SamsungApps
SVoice
SMemo
GroupPlay
ChatON
0
20
40
60
80
100
120
140
160
68
Exhibit 132: SEC moved later compared with peers in launching various software services
Launch of SECs software services vs. leading peers
Videostreaming
service
Samsunglaunches
MilkVideo
YouTubefounded
WhatsApp
Messenger
launchedonthe
AppStore
Mobile
messenger
KakaoTalkis
launched
FirstAndroid
running
smartphoneis
launched
OSfor
smartphones
February
2005
October
2008
Samsunglaunches
ChatON
Samsung released
firstBadaOS
basedphone
Nov.
2009
March
2010
April
2010
Samsungreleased
firstTizen OS
basedsmartphone
October
2011
Nov.
2014
January
2015
Although the transparency of the internet business models has made replication by
competitors relatively easy, the first-mover advantage is still important in software. In
addition, with high interconnection of the internet and mobile network, we believe early
movers in software services could rapidly increase their user base. We therefore think that
SECs fast follower strategy has not been able to a make meaningful impact on the
software services front.
Moblin
(Nokia)
(Intel)
LiMo
(Linuxfoundation
/Samsung)
SLP
Bada
(Samsung)
(Samsung)
MeeGo
(Nokia/Intel)
Tizen
mer
(Intel/Samsung/
LinuxFoundation)
(Opencommunity)
NemoMobile
SailfishOS
(Opencommunity)
(Jolla)
Tizen2.0
Tizen2.4
(Intel/Samsung/
LinuxFoundation)
(Intel/Samsung/
LinuxFoundation)
69
After a series of delays, SEC officially launched its first Tizen phone, Z1, in February 2015
and it announced Z3 in October 2015. According to Strategy Analytics, SEC sold around
2.9mn Tizen phones in 2015 (around 1% of total shipment).
Model
Launch
Low/mid/high
Differentiating feature
Air interface
Screen technology
Size
Memory
NAND
Camera
CPU
Battery
Dimensions
Weight
Region
Operating system
Samsung Z1
January 2015
Low
Samsung's first Tizen smartphone
GSM/HSPA
PLS LCD
4.0 inch, 233ppi
768 MB RAM
4 GB internal
VGA/3.15MP
Spreadtrum SC7727S
1500mAh
120.4x63.2x9.7mm
112g
South Asia
Tizen OS 2.3
Samsung Z3
October 2015
Low
Samsung's second Tizen smartphon
GSM/HSPA
HD AM OLED
5.0 inch, 294ppi
1024 MB RAM
8 GB internal
5MP/8MP
Spreadtrum Quad-core 1.3GHz
2600mAh
141.6x70x7.9mm
137g
South Asia
Tizen OS 2.3
(mnunits)
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1Q15
2Q15
3Q15
4Q15
Despite its efforts, we view that it will be tough for Tizen OS to become one of the main
operating systems for mobile devices such as Android and iOS. First of all, Tizen has not
attracted software developers enough to add various applications. As of 1H15, Tizen has
around 1000 apps, far lower than 1.6mn for Google Play (Android) and 1.5mn for Apple
App Store (iOs).
('000s)
1.6mn
1,800
1.5mn
1,600
1,400
1,200
1,000
800
600
1,000
400
200
0
TizenStore(TizenOS) GooglePlay(AndroidOS)
AppStore(iOS)
Source: Digitaltimes.
70
Exhibit 137: Samsung lacks mobile services compared with other companies
Mobile service comparison by OS, as of 2015
Company
OperatingSystem
Search
ApplicationsStore
MusicStore/MusicStreamingService
Movies/TVShowsStore
GamesStore
EBooks/Newspaper/MagazinesStore
CloudStorage
Documents/Notes
Maps&Navigation
Mail
Calendar&ToDo
Chat/IM
ScreenMirroring
LanguageTranslation
PersonalAssistant
DigitalWallet
CloudPrinting
Samsung
Tizen
NA
TizenStore
SamsungMilkMusic
NA
SamsungGames
KindleforSamsung
NA
SMemo
NA
NA
NA
NA
SamsungLink
SamsungSTranslate
SamsungSVoice
SamsungPay
SamsungCloudPrint
Google
Android
Google
GooglePlayStore
GooglePlayMusic
GooglePlayMovies&TV/YouTube
GooglePlayGames
GooglePlayBooks&GooglePlayNewsstand
GoogleDrive/Google+Photos
GoogleDocs/Sheets/Slides
GoogleMaps
Gmail
GoogleCalendar
GoogleHangouts
GoogleChromecast
GoogleTranslate
GoogleVoiceSearch/GoogleNow
GoogleWallet/AndroidPay
GoogleCloudPrint
Apple
iOS
NA
AppStore
iTunes
iTunes
AppStore/GameCenter
AppleiBooks/AppleNewsstand
iCloudDrive
iWork/iWorkoniCloud/Notes
AppleMaps
iCloudMail
iCloudCalendar
iMessage
AirPlaywithAppleTV
NA
Siri
ApplePay
iCloudPrint
Microsoft
WindowsPhone
Bing
WindowsPhoneStore
XboxMusic
XboxVideo
WindowsPhoneStore
NA
OneDrive
MicrosoftOffice365/OneNote
HEREMaps
Outlook/Hotmail
OutlookCalendar
Skype
MicrosoftWirelessDisplayAdapter
BingTranslator
Cortana
WindowsPhoneWallet
NA
From a long-term perspective, SEC may attempt to gain OS share with Tizen in the
upcoming IoT ecosystem, leveraging its solid share in TV and home appliances. However,
we do not believe a strong position in the TV and appliances market will accelerate Tizens
expansion as: (1) TV and appliances have much longer product cycles than smartphones,
and (2) TV and appliances are shared by family members, while the smartphone is a
personal device. Simply put, it will be hard for us to expect that the majority of consumers
will be willing to replace smartphone OS to Tizen so as to synchronize the OS with their TV
or refrigerator.
71
Upfrontprice
iPhoneFY15ASP:$670.5
MacBook256GB:$1,299
iPadAir,16GBWiFi:$399
AppleWatchSport(42mm):$399
AppleTV,32GB:$149
$0.14
$0.36
$3.00
$3.50
$41.54
$41.44
Installment
(months)
24
48
36
24
24
TheoreticalMaximumARPU*
HardwareInstallmentPlan
iPhone
Mac
iPad
Watch
TV
TotalhardwareInstallmentplanARPU
$32.45
$27.06
$11.08
$16.63
$6.21
$93.43
AppleServices
Music
TV
Other(apps,iTunes,Pay,etc.)
TotalserviceARPU
$9.99
$40.00
$10.00
$59.99
TotalARPU
Upfrontprice
Installment
(months)
iPhone6s16GB:$649
MacBook256GB:$1,299
iPadAir,16GBWiFi:$399
AppleWatchSport(42mm):$399
AppleTV,32GB:$149
24
48
36
24
24
$153.42
*AssumingauserpurchaseseveryAppledeviceandservice
If SEC were to establish its own ecosystem like Apple, we think it could potentially tap into
the substantial revenues from service ARPU, especially considering its high share in the
smartphone market. However, we believe that it will be quite tough for SEC to create its
own ecosystem as: (1) it is virtually not possible to establish an ecosystem without own OS,
(2) we expect Android and iOS to maintain their dominant positions, and (3) Tizens
expansion will be largely limited even from a long-term perspective.
The second alternative is to focus on new growth opportunities for its hardware business.
Indeed, SEC plans to target fresh growth momentum from new avenues such as
smartwatch, IoT, and VR. Further, we think SEC will be well positioned in the new hardware
markets given its strong competitiveness in hardware manufacturing and well-established
brand value. However, we view that the growth curve for the new hardware products to be
gradual and addressable market size will be smaller compared with smartphones. For
instance, we expect the hardware TAM of VR to reach about US$45bn by 2025E in our base
case, which is closer to the tablet hardware market (US$59bn) today, but far lower than TVs
or smartphones.
Goldman Sachs Global Investment Research
72
Exhibit 140: Our base case for VR is that it will grow to a US$45bn market by 2025E, which
is smaller than the 2015 tablet PC market
Hardware TAM comparison (based on 2015 except VR)
(U$bn)
450
400
350
300
250
200
150
100
50
0
73
When the traditional hardware industry was at a nascent stage, there was room for
hardware differentiation in tandem with the evolution of underlying operating system and
related applications. Over time, however, the value of the ecosystem tends to flow towards
the software and proprietary hardware layers, leaving less room for differentiation among
the hardware vendors themselves as can be identified from sharp dips in SECs
smartphone profitability over the past couple of years. We believe that it would become
increasingly challenging for SEC to improve or protect its hardware profitability if the
company maintains its hardware-centric business model, taking into account
decelerating hardware market growth as well as ever-intensifying competition with lower
entry barriers.
Therefore, we believe SEC could tap additional services, rather than hardware itself, to
generate profits. In our hardware-as-a-platform scenario, we think it could focus on
maximizing hardware market share via lower pricing and higher volume shipment. In light
of increasing market share at the expense of lower hardware profitability, we believe SEC
could potentially generate additional earnings streams from various services including
mobile payment, mobile commerce (m-commerce), online-to-offline (O2O) services, and
music streaming service.
Exhibit 142: Our hardware-as-a-platform business model
According to this scenario, SEC could pre-install various services in its hardware products
(mostly smartphones and tablets in the beginning) and generate additional earnings from
the services in light of its high market share base.
However, we think one of major obstacles for SEC to execute hardware-as-a-platform
strategy could be its lack of experience and presence in the services business, especially
for m-commerce, O2O, and music streaming service. As we believe it will be quite tough
for SEC to create its own services given its limited competence in software and services,
lack of experience, and well-established service providers, SEC could collaborate with the
well-established service companies in each market, sharing profits with them. From service
companies perspective, they could rapidly increase share in their respective markets,
leveraging SECs high market share base in hardware. In order to achieve proactive
collaboration, SEC could consider aggressive investment in existing service providers via
acquisitions or strategic investment, in our view.
74
Even though we expect SEC to generate potential additional earnings streams in our
hardware-as-a-platform scenario, we do not believe that every hardware maker could
adopt this business model given increasing risks on hardware profitability. In our view,
hardware companies having superior manufacturing cost structure coupled with wellestablished brand value such as SEC are only well suited for the hardware-as-a-platform
scenario as: (1) aggressive pricing may not directly translate into share gain in the case of
poor brand recognition, and (2) potential loss from hardware sales will be very high
without a solid cost structure.
75
range segment with aggressive pricing. In the high-end segment, SEC could keep
introducing best-in-class hardware products and maintaining comparable pricing to its
major competitors in the segment. On the other hand, in the low-end segment, it could
adopt a substantially aggressive pricing strategy, focusing primarily on market share gain
rather than profitability, in our view.
We note that SECs profitability in the mid-range/low-end smartphone segments will
substantially and rapidly decline and potentially generate losses (given aggressive pricing)
in the early stage. However, over time, we assume that SECs low-end smartphone margin
would potentially recover to mid-single digit level in light of: (1) decreasing competition
with marginal cost manufacturers exiting the industry on account of SECs substantial
share gain with an aggressive pricing strategy, and (2) further improvement in cost
structure for SECs low-end smartphone as a consequence of superior scale.
Exhibit 144: We expect SEC to ship more smartphones
under the hardware-as-a-platform business model
45%
800
40%
700
35%
600
30%
500
3.3X
20%
300
15%
200
10%
100
5%
0
2011
2013
2015
Basecase
2017E
2019E
2021E
2023E
2025E
26ppt
25%
400
0%
2011
2013
"Hardwareasaplatform"scenario
2015
Basecase
2017E
2019E
2021E
2023E
2025E
"Hardwareasaplatform"scenario
(US$)
350
250
230
210
190
170
150
130
110
90
70
50
300
250
200
150
29%
100
50
2011
2013
2015
Basecase
2017E
2019E
2021E
2023E
"Hardwareasaplatform"scenario
2025E
36%
2011
2013
2015
Basecase
2017E
2019E
2021E
2023E
2025E
"Hardwareasaplatform"scenario
Our long-term projections under the hardware-as-a-platform scenario suggest that SECs
smartphone segment would be able to maintain annual sales of around W84tn with
operating profit of W4.7tn by 2025E, higher than our base case estimates of W36tn and
W1.4tn for revenue and operating loss, respectively, by 2025E.
Goldman Sachs Global Investment Research
76
(KRWtn)
30%
120
25%
100
20%
80
15%
60
2.3X
10%
40
5%
20
0%
10ppt
5%
10%
2011
Basecase
"Hardwareasaplatform"scenario
2013
2015
Basecase
2017E
2019E
2021E
2023E
2025E
"Hardwareasaplatform"scenario
77
Payee
(Merchant)
Merchant
Transaction
Acquirer
Payer
(Consumer)
Merchant
processor
Issuing
processer
Network
Recipient
CreditPrepaid
Debit
Merchant
acquirer
Network
ACH
Emerging
MoneyTransfer
Acquirer
Processor
IssuerProcessor
Merchantpays
merchantdiscount
rate(MDR)
Issuingbank
Collects MDRand
distributes
interchangeand
networkfees
Receives network
feesfromacquirers
andissuers
Cardholder pays
interestorfees
associatedwithcard
Receives
interchange
CardIssuer
SupportingValueAddedServices
Loyalty
RiskServices
Information
Services
ecommerce
MobileAccess
Exhibit 152: An economic flow illustration for the electronic payments industry
RevenueAllocation
Purchase
Transaction
MerchantSettlement
Consumer
$100.0
Merchant
$98.00
Gross
Processing
Revenue
InterchangeFees
$1.80
Card Issuer
NetworkFees
$0.10
CardNetwork
DirectMerchantAcquirer
NetRevenue
$0.10
Directmerchant
acquirer
OR
IndirectMerchantAcquirer
ISOFees
$0.05
ISO
NetRevenue
$0.05
Indirectmerchant
acquirer
On March 2015, SEC introduced Samsung Pay, its mobile payment service. Samsung Pay
allows Galaxy S6/Galaxy S7 series, Galaxy Note 5 users to make one-touch payment for
goods and services with their SEC devices at retail locations with not only near field
communication (NFC)-enabled terminals but also existing magnetic-stripe POS terminals.
In contrast to competitors mobile payment platforms including Apple Pay and Android Pay
which require NFC-based POS terminals, Samsung Pay can be used at existing magneticstripe POS terminals with the Magnetic Secure Transmission (MST) patented technology
by LoopPay which was acquired by SEC in Feb 2015.
78
Exhibit 153: Samsung Pay can utilize MST technology in addition to NFC
Mobile payment platform comparison
Company
Launchdate
Technology
Supporteddevices
Securitymeasures
SamsungPay
SamsungElectronics
August2015
MST,NFC
GalaxyS6,GalaxyS6edge,GalaxyNote5,Galaxy
S6edge+,GearS2(NFConly),GalaxyS7,Galaxy
S7edge,GalaxyA5,GalaxyA7
Tokenization,fingerprint,SamsungKNOX
ApplePay
Apple
October2014
NFC
AndroidPay
Google
September2015
NFC
iPhone6,iPhone6Plus,iPhone6S,iPhone6S
Plus,AppleWatch
Androidv4.4orabovedeviceswithNFCchip
Tokenization,fingerprint
Tokenization,fingerprint
As with Apple Pay, Visa and MasterCard are enabling Samsung Pays security by providing
tokenization services. Although we believe Samsung Pays security protocol is less tight
than the fully NFC- and EMV-compliant stack offered by Apple Pay, it is still more secure
than traditional physical magnetic stripe cards because of the presence of fingerprint
authentication technology. Like Apple Pay, Samsung Pay does not attempt to disrupt the
existing payment system, but rather works with payment and technology incumbents
(including networks and banks) to bring ease-of-use and increased security features to
consumers, issuers, and merchants.
Samsung
KNOX
Cloudbased data
exchange
SamsungPayMST
/NFC
Confirmordeny
payment
Paymentrequest
withTokendata
Merchant
Response
IssuingBank
Presentingthe
token
Datatoissuer
Token
Assurance
Token request
MerchantAcquirer
Payment Network
Response
TokenService
Provider
Source: Company data, Goldman Sachs Global Investment Research.
In theory, Samsung Pay could allow significantly faster merchant adoption than Apple Pay
as we estimate that over 80% of merchants already possess POS hardware that are
compatible with Samsung Pay (vs. 13% of US merchants with Apple Pay compatible POS
hardware in 2015). As such, we believe Samsung Pay could shape the default wallet
offering for Samsung devices. On September 2015, SEC launched Samsung Pay in the US
in partnership with Visa, MasterCard, American Express card, Bank of America, Citi, and US
Bank. SEC plans to launch Samsung Pay in China and Spain in 1Q16, followed by UK,
Australia, Brazil, and Singapore during 2016.
79
To tackle security issues, many merchants have been asked to upgrade their POS terminals
with EMV-capable systems and they may also choose to opt for an upgraded terminal
which also supports NFC, especially in the US. For instance, Visa and MasterCard
implemented a liability shift deadline on October 1, 2015, in order to encourage US
merchants to upgrade their current POS terminals to support chip-based (EMV) credit cards,
post which they would be liable for fraud (instead of banks) if they do not have EMVcapable systems installed. Accordingly, we expect NFC terminal expansion will accelerate
over the next couple of years with NFC adoption rate surging to 67% by 2018E from 17% in
2015.
100%
60,000
90%
80%
50,000
70%
40,000
60%
50%
30,000
40%
30%
20,000
20%
10,000
10%
0%
2014
Global
2016E
US
2018E
2020E
Canada/LatAm
2022E
EMEA
2024E
APAC
0
2014
2016E
2018E
TotalpotentialNFCtransactions
2020E
2022E
2024E
TotalpotentialnonNFCtransactions
Although the exact amount of SECs spreads are not disclosed, we expect it to receive
some consideration from credit and debit transactions; we assume spreads on Samsung
Pay would range from 2-10bp for credit transactions (vs. 3-15 bp for Apple Pay) but
significantly less for debit transactions. Although our average spread assumptions in the
long term may appear rather conservative, we note that Samsung Pays spread in the initial
stage could seem rather aggressive given limited bargaining power of mobile payment
platform holders at an early stage. We, however, assume identical spread assumptions on
Samsung Pay so as to simplify our assumptions.
In our base case, we expect SECs smartphone shipments and share to gradually decline.
As such, we estimate that Samsung Pay will generate around US$1.1bn revenue with
US$0.7bn EBIT by 2025E.
80
Exhibit 157: Earnings opportunity from Samsung Pay: Base case estimates
PurchaseTAM($bn)
US
Canada/LatAm
EMEA
APAC
Samsungsmartphonemarketshare(%)
US
Canada/LatAm
EMEA
APAC
SamsungPaycompatibledevicesas%ofSamsungsmartphone(%)
US
Canada/LatAm
EMEA
APAC
SamsungPaycustomeradoptionrate(%)
US
Canada/LatAm
EMEA
APAC
TotalSamsungPaytransactions($bn)
US
Canada/LatAm
EMEA
APAC
Samsung'sspreadoncredittransactions(bps)
US
Canada/LatAm
EMEA
APAC
Samsung'sspreadondebittransactions(bps)
US
Canada/LatAm
EMEA
APAC
RevenuefromSamsungPay($bn)
US
Canada/LatAm
EMEA
APAC
EBITfromSamsungPay($bn)
EBITMargin(%)
US
Canada/LatAm
EMEA
APAC
Sequentialchange(%)
PurchaseTAM
US
Canada/LatAm
EMEA
APAC
2015
18,850
5,499
1,475
3,560
8,316
2016E
21,211
6,016
1,628
3,905
9,663
2017E
23,891
6,582
1,797
4,284
11,228
2018E
26,933
7,200
1,984
4,702
13,047
2019E
30,389
7,877
2,191
5,160
15,161
2020E
34,316
8,618
2,419
5,663
17,617
2021E
38,418
9,307
2,637
6,215
20,259
2022E
42,842
10,052
2,874
6,820
23,096
2023E
47,391
10,755
3,104
7,434
26,098
2024E
52,193
11,508
3,353
8,103
29,230
2025E
57,212
12,314
3,621
8,832
32,445
22%
30%
38%
13%
20%
27%
34%
11%
19%
26%
33%
10%
18%
25%
32%
10%
17%
24%
31%
9%
15%
22%
29%
8%
13%
20%
27%
8%
12%
17%
26%
7%
11%
16%
25%
7%
11%
16%
23%
6%
10%
15%
22%
5%
20%
15%
5%
10%
40%
25%
10%
15%
50%
30%
15%
20%
60%
35%
20%
25%
70%
40%
25%
30%
80%
50%
30%
40%
90%
60%
40%
50%
100%
80%
50%
60%
100%
90%
60%
80%
100%
100%
80%
90%
100%
100%
90%
100%
5%
5%
5%
5%
24
12
3
3
5
20%
20%
20%
20%
177
96
22
27
32
40%
40%
40%
40%
481
250
56
85
90
60%
60%
60%
60%
949
472
105
183
190
70%
70%
70%
70%
1,366
664
149
283
271
75%
75%
75%
75%
1,773
776
200
369
428
80%
80%
80%
80%
2,269
871
253
537
608
80%
80%
80%
80%
2,749
965
313
696
776
80%
80%
80%
80%
3,264
946
358
874
1,086
80%
80%
80%
80%
3,796
967
416
1,193
1,221
80%
80%
80%
80%
4,194
985
435
1,399
1,376
10.0
3.0
2.0
2.0
3.0
1.5
1.0
1.0
0.0
0
0
0
0
0.0
68%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.1
0
0
0
0
0.1
69%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.2
0
0
0
0
0.1
68%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.4
0
0
0
0
0.3
68%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.5
0
0
0
0
0.4
68%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.6
0
0
0
0
0.4
68%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.8
1
0
0
0
0.5
68%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.9
1
0
0
0
0.6
67%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.9
1
0
0
0
0.6
67%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
1.0
1
0
0
0
0.7
66%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
1.1
1
0
0
0
0.7
66%
70%
65%
60%
60%
12%
9%
10%
10%
16%
13%
9%
10%
10%
16%
13%
9%
10%
10%
16%
13%
9%
10%
10%
16%
13%
9%
10%
10%
16%
13%
9%
10%
10%
16%
12%
8%
9%
10%
15%
12%
8%
9%
10%
14%
11%
7%
8%
9%
13%
10%
7%
8%
9%
12%
10%
7%
8%
9%
11%
81
2015
18,850
5,499
1,475
3,560
8,316
2016E
21,211
6,016
1,628
3,905
9,663
2017E
23,891
6,582
1,797
4,284
11,228
2018E
26,933
7,200
1,984
4,702
13,047
2019E
30,389
7,877
2,191
5,160
15,161
2020E
34,316
8,618
2,419
5,663
17,617
2021E
38,418
9,307
2,637
6,215
20,259
2022E
42,842
10,052
2,874
6,820
23,096
2023E
47,571
10,856
3,133
7,485
26,098
2024E
52,387
11,616
3,384
8,158
29,230
2025E
57,421
12,429
3,654
8,893
32,445
22%
30%
38%
13%
22%
32%
42%
17%
22%
33%
43%
22%
22%
35%
45%
26%
21%
36%
47%
29%
21%
37%
49%
30%
21%
38%
50%
32%
21%
38%
52%
32%
20%
38%
52%
32%
20%
38%
53%
33%
20%
38%
54%
33%
20%
15%
5%
10%
50%
40%
20%
30%
70%
60%
40%
50%
80%
75%
50%
60%
100%
90%
70%
80%
100%
100%
90%
95%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
5%
5%
5%
5%
24
12
3
3
5
20%
20%
20%
20%
341
132
42
66
101
50%
50%
50%
50%
1,671
507
178
368
618
70%
70%
70%
70%
3,426
887
365
741
1,434
80%
80%
80%
80%
6,031
1,323
568
1,358
2,782
80%
80%
80%
80%
8,213
1,448
716
1,998
4,051
80%
80%
80%
80%
9,986
1,564
802
2,486
5,134
80%
80%
80%
80%
11,270
1,689
874
2,837
5,870
80%
80%
80%
80%
12,520
1,737
957
3,114
6,712
80%
80%
80%
80%
14,032
1,859
1,039
3,426
7,707
80%
80%
80%
80%
15,395
1,989
1,111
3,842
8,454
3.0
1.5
1.0
1.0
0.0
0.0
0.0
0.0
0.0
0.0
68%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.1
0.1
0.0
0.0
0.0
0.1
68%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.5
0.3
0.0
0.0
0.1
0.3
67%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
0.9
0.6
0.1
0.1
0.2
0.6
66%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
1.5
0.8
0.1
0.2
0.4
1.0
66%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
1.9
0.9
0.2
0.2
0.6
1.2
65%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
2.2
1.0
0.2
0.3
0.7
1.4
65%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
2.4
1.1
0.2
0.4
0.8
1.6
65%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
2.6
1.1
0.2
0.4
0.9
1.7
65%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
2.9
1.2
0.2
0.4
1.1
1.9
64%
70%
65%
60%
60%
3.0
1.5
1.0
1.0
3.2
1.3
0.3
0.5
1.2
2.0
64%
70%
65%
60%
60%
12%
9%
10%
10%
16%
13%
9%
10%
10%
16%
13%
9%
10%
10%
16%
13%
9%
10%
10%
16%
13%
9%
10%
10%
16%
13%
9%
10%
10%
16%
12%
8%
9%
10%
15%
12%
8%
9%
10%
14%
11%
8%
9%
10%
13%
10%
7%
8%
9%
12%
10%
7%
8%
9%
11%
Considering SECs annual EBIT of US$23bn in 2015, incremental earnings upside from
Samsung Pay could be seen relatively immaterial, in our view. However, we believe that
earnings upside from Samsung Pay under our hardware-as-a-platform scenario could
increase even higher if SEC were to raise its spreads on transaction volume over time,
compared with our rather conservative assumptions (average credit spread of 3.4bp and
average debit spread of 1.2bp in 2025E).
82
Revenue(U$bn)
EBIT(U$bn)
Spreadoncredittransactions(bps)
0.5
1.0
1.2
2.0
3.0
1.0
1.1
1.5
1.8
2.5
3.5
2.0
1.6
2.1
2.4
3.1
4.0
3.4
2.5
2.9
3.2
3.9
4.8
5.0
3.4
3.9
4.1
4.8
5.8
10.0
6.3
6.8
7.0
7.7
8.7
Spreadon
debit
transactions
(bps)
Spreadon
debit
transactions
(bps)
Spreadoncredittransactions(bps)
0.5
1.0
1.2
2.0
3.0
1.0
0.7
1.0
1.1
1.6
2.2
2.0
1.1
1.4
1.5
2.0
2.6
3.4
1.6
1.9
2.0
2.5
3.1
5.0
2.2
2.5
2.6
3.1
3.7
10.0
4.1
4.4
4.5
5.0
5.6
E-commerce has become part of everyday life for many people and it is growing rapidly.
We believe that online shopping will continue to gain popularity as long as it offers
advantages over traditional channels. Habit and conditioning should also play an important
role as todays younger generation has grown up in the digital/mobile age and make more
of their purchases online than their parents. We see no reason for this to change as they
age (for details, refer to our Asia-Pacific consumer teams report The Asian Consumer:
Chinese Millennials, dated September 8, 2015).
Goldman Sachs US e-commerce team led by Heath Terry expects the global e-commerce
market to reach US$2.1tn in 2019E with a 5-yaer CAGR of 19% from 2014 to 2019E,
representing approximately 10% of total retail market. In terms of region, the growth will
be largely driven by strength in China and India, mid-teens growth in North America and
Western Europe and lagging performance in Russia, Japan, and Brazil.
In addition, according to our US e-commerce team, the global m-commerce market
reached US$200bn in sales in 2014 and will reach US$863bn by 2019E, which accounts for
around 41% of the total global e-commerce sales currently.
83
YoYGrowth
Developed Markets
United States
North America
Western Europe
South Korea
Japan
BRICs
Brazil
Russia
India
China
Rest of Emerging Markets
Rest of Asia
Rest of Latin America
Eastern Europe
Middle East & Africa
Total
Ecommerceasa%ofTotalRetail(online+offline)
Developed Markets
United States
North America
Western Europe
South Korea
Japan
BRICs
Brazil
Russia
India
China
Rest of Emerging Markets
Rest of Asia
Rest of Latin America
Eastern Europe
Middle East & Africa
Total
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
$133,557
97.0%
$137,659
$117,607
$18,754
$44,198
$158,375
97.1%
$163,117
$144,597
$22,236
$54,846
$181,657
97.1%
$187,055
$157,887
$24,381
$60,649
$211,993
97.2%
$218,069
$187,087
$28,114
$56,978
$244,746
97.4%
$251,353
$225,154
$31,696
$55,629
$281,106
97.3%
$288,906
$261,255
$35,267
$51,994
$321,613
97.3%
$330,538
$299,623
$39,074
$58,293
$364,500
97.3%
$374,807
$340,760
$43,190
$64,796
$407,441
97.2%
$419,178
$383,357
$47,570
$71,805
$452,061
97.2%
$465,084
$426,320
$52,010
$79,129
$8,248
$6,640
$2
$9,540
$10,223
$9,125
$23
$31,356
$10,358
$11,737
$230
$65,299
$11,153
$14,884
$905
$124,922
$12,299
$17,110
$2,729
$204,091
$12,136
$13,527
$6,638
$327,862
$13,976
$14,708
$11,392
$466,881
$15,938
$17,075
$17,828
$605,132
$17,901
$19,794
$25,759
$740,269
$19,971
$21,602
$35,085
$867,280
$12,320
$4,746
$7,970
$1,868
$369,553
$17,084
$6,318
$9,841
$2,244
$471,008
$23,247
$8,315
$10,931
$2,716
$562,805
$26,227
$10,839
$13,321
$3,478
$695,978
$29,231
$12,997
$14,832
$4,786
$861,906
$32,545
$14,990
$17,181
$5,878
$1,068,179
$36,167
$18,292
$19,911
$7,013
$1,315,867
$39,965
$22,026
$22,966
$8,290
$1,572,774
$44,141
$26,206
$25,968
$9,728
$1,831,675
$48,776
$30,699
$29,037
$11,264
$2,086,257
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
15.4%
15.5%
15.7%
32.5%
22.7%
18.6%
18.5%
22.9%
18.6%
24.1%
14.7%
14.7%
9.2%
9.7%
10.6%
16.7%
16.6%
18.5%
15.3%
6.1%
15.4%
15.3%
20.3%
12.7%
2.4%
14.9%
14.9%
16.0%
11.3%
6.5%
14.4%
14.4%
14.7%
10.8%
12.1%
13.3%
13.4%
13.7%
10.5%
11.2%
11.8%
11.8%
12.5%
10.1%
10.8%
11.0%
11.0%
11.2%
9.3%
10.2%
40.0%
34.2%
348.8%
217.6%
23.9%
37.4%
917.9%
228.7%
1.3%
28.6%
904.8%
108.2%
7.7%
26.8%
294.5%
91.3%
10.3%
15.0%
201.4%
63.4%
1.3%
20.9%
143.3%
60.6%
15.2%
8.7%
71.6%
42.4%
14.0%
16.1%
56.5%
29.6%
12.3%
15.9%
44.5%
22.3%
11.6%
9.1%
36.2%
17.2%
35.3%
35.2%
20.7%
24.8%
20.9%
38.7%
33.1%
23.5%
20.1%
27.5%
36.1%
31.6%
11.1%
21.0%
19.5%
12.8%
30.4%
21.9%
28.1%
23.7%
11.5%
19.9%
11.3%
37.6%
23.8%
11.3%
15.3%
15.8%
22.8%
23.9%
11.1%
22.0%
15.9%
19.3%
23.2%
10.5%
20.4%
15.3%
18.2%
19.5%
10.4%
19.0%
13.1%
17.3%
16.5%
10.5%
17.1%
11.8%
15.8%
13.9%
2010
2011
2012
2013
2014
2015E
2016E
2017E
2018E
2019E
5.5%
5.0%
3.8%
11.6%
3.9%
6.3%
5.7%
4.4%
11.7%
4.4%
6.9%
6.4%
5.1%
12.7%
4.8%
7.8%
7.2%
5.8%
14.0%
5.4%
8.8%
8.1%
6.7%
14.8%
5.4%
9.7%
9.0%
7.5%
15.9%
5.5%
10.6%
9.8%
8.3%
16.7%
5.8%
11.5%
10.6%
9.0%
17.5%
6.2%
12.3%
11.4%
9.7%
18.3%
6.7%
13.1%
12.1%
10.3%
19.1%
7.1%
2.6%
1.7%
0.0%
0.4%
2.8%
2.0%
0.0%
1.1%
3.0%
2.4%
0.1%
2.0%
3.3%
2.8%
0.2%
3.4%
3.6%
3.3%
0.7%
5.1%
4.0%
3.6%
1.5%
7.6%
4.4%
3.9%
2.3%
10.0%
4.8%
4.3%
3.2%
12.1%
5.2%
4.7%
4.2%
14.0%
5.6%
5.0%
5.2%
15.4%
1.5%
0.8%
2.3%
0.3%
2.9%
1.8%
1.0%
2.6%
0.3%
3.3%
2.3%
1.2%
3.1%
0.3%
3.8%
2.5%
1.5%
3.5%
0.4%
4.5%
2.7%
1.7%
3.9%
0.6%
5.4%
2.9%
2.0%
4.4%
0.6%
6.5%
3.0%
2.3%
4.8%
0.7%
7.5%
3.2%
2.7%
5.3%
0.7%
8.5%
3.3%
3.1%
5.7%
0.8%
9.4%
3.5%
3.6%
6.1%
0.8%
10.2%
2016E
2017E
2018E
2019E
$1,316
23.2%
$1,573
19.5%
$1,832
16.5%
$2,086
13.9%
GlobalMcommerce(U$bn)
Y/Y%growth
%ecommercesales
$200
44.8%
23.2%
$306
53.1%
28.6%
$439
43.5%
33.3%
$563
28.3%
35.8%
$703
24.9%
38.4%
$863
22.7%
41.3%
Mcommerceperbuyer
Y/Y%growth
$369
8%
$420
14%
$482
15%
$523
9%
$561
7%
$603
7%
84
Exhibit 163: M-commerce could translate into a meaningful earnings opportunity under our hardware-as-a-platform
scenario
Scenario analysis: Earnings opportunity from SECs m-commerce
McommerceGMV($bn)
Sequentialgrowth(%)
Samsungsmartphonemarketshare(%)
US
Canada/LatAm
EMEA
APAC
Smartphoneregionalshare(%)
US
Canada/LatAm
EMEA
APAC
Samsung'sMcommerceadoptionrate(%)
Samsung'sMcommercemarketshare(%)
TotalSamsungMcommercetransactions($bn)
Samsung'sspreadonMcommercetransactions(bps)
RevenuefromSamsungMcommerce($bn)
Sequentialgrowth(%)
EBITfromSamsungMcommerce($bn)
EBITMargin(%)
Sequentialgrowth(%)
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
200 306 439 563 703 863 1,053 1,263 1,491 1,729 1,971 2,208
45%
53%
43%
28%
25%
23%
22%
20%
18%
16%
14%
12%
22%
26%
29%
32%
34%
35%
37%
37%
37%
38%
38%
25%
22%
22%
22%
22%
21%
21%
21%
21%
20%
20%
20%
30%
30%
32%
33%
35%
36%
37%
38%
38%
38%
38%
38%
40%
38%
42%
43%
45%
47%
49%
50%
52%
52%
53%
54%
16%
13%
17%
22%
26%
29%
30%
32%
32%
32%
33%
33%
12%
12%
25%
51%
11%
11%
26%
52%
10%
10%
10%
9%
27%
28%
53%
53%
2%
3%
1%
1%
3 7
30 40
0.0 0.0
176%
0.0 0.0
20%
25%
245%
10%
9%
28%
53%
5%
2%
15
80
0.1
333%
0.0
30%
420%
10%
9%
29%
52%
10%
4%
37
150
0.6
380%
0.2
35%
460%
10%
9%
30%
51%
15%
6%
70
180
1.3
124%
0.5
40%
156%
10%
9%
30%
51%
20%
7%
111
200
2.2
78%
0.9
42%
87%
10%
9%
30%
51%
30%
11%
194
220
4.3
92%
1.9
45%
106%
10%
9%
30%
51%
40%
15%
300
250
7.5
75%
3.6
48%
87%
10%
9%
30%
51%
50%
19%
422
280
11.8
58%
5.9
50%
65%
85
Revenue(U$bn)
EBIT(U$bn)
SpreadonMcommercetransactions(bps)
30%
40%
50%
60%
70%
240
6.1
8.1
10.1
12.2
14.2
260
6.6
8.8
11.0
13.2
15.4
280
7.1
9.5
11.8
14.2
16.5
300
7.6
10.1
12.7
15.2
17.7
320
8.1
10.8
13.5
16.2
18.9
SEC's
Mcommerce
adoptionrate
SEC's
Mcommerce
adoptionrate
SpreadonMcommercetransactions(bps)
30%
40%
50%
60%
70%
240
3.1
4.1
5.1
6.1
7.1
260
3.3
4.4
5.5
6.6
7.7
280
3.6
4.7
5.9
7.1
8.3
300
3.8
5.1
6.4
7.6
8.9
320
4.1
5.4
6.8
8.1
9.5
Exhibit 166: Major O2O service providers, by country (as of March 2016)
Transportation
Carsharing
Parking
Fooddelivery
Accomodation/tourism
Medicalservice
Restaurantreservation
UnitedStates
Uber,Lyft
Zipcar
Luxe,Zirx
UberEats,Instacart
Airbnb
Yelp
OpenTable
China
DidiKuaidi
DidiShunFengChe
Tingchebao
Yummy77,ele.me,Daojia
ctrip.com,tuniu.com
ChunyuYisheng
Dianping
Japan
LINETaxi
TimesCarPlus,Orix,Careco
Akippa
LINEWow
JAPANiCAN
SearchDr.
Gurunavi,Toreta
Korea
KakaoTaxi
Socar,Greencar
ParkingOn,iParking
BaedalMinjok,Yogiyo
DailyHotel,ZaiSeoul
Goodoc
Poing
In our view, for SEC to successfully expand its business to the O2O market, it could
consider collaborating with well-established service providers via potential strategic
alliances or acquisitions as: (1) O2O platforms require to coordinate with a wide range of
offline partners including manufacturers, wholesalers, retailers, logistics centers, and call
centers where SEC has little experience, (2) O2O platforms could be established by
seamless online and offline services, but SEC has a limited track record in the services
business, and (3) localization is one of the most critical factors for success of O2O
platforms, but it will be extremely challenging for SEC to establish a local-oriented platform
globally.
86
We believe that the collaboration could be mutually beneficial for O2O companies as well
as SEC. From O2O service companies perspective, they could rapidly increase share if
SECs hardware products pre-install their apps, especially under our hardware-as-aplatform scenario. For SEC, it could generate additional earnings from O2O, sharing
profits with service providers.
Exhibit 167: Comparison of key mobile music streaming services (March 2016)
SpotifyPremium
PandoraOne
AppleMusic
GooglePlayMusic
MilkMusicPremium
RadioUnlimited
RhapsodyPremier
TIDAL
Price
$9.99/month($0.99/monthforfirst3months)
$4.99/monthor$54.89/year
$9.99/month(first3monthsfree)
$14.99/monthfamilyplanforupto6familymembers
$9.99/month(firstmonthfree)
$3.33/month
$9.99/month
$9.99/month(first14daysfree,3monthsfor$1)
$14.99/monthfamilyplanforupto5members
$9.99/month(TIDALPremium),$19.99/month(TIDALHiFi)
Offering
Adfreestreaming;offlinelistening
Adfreestreamingwithfewertimeouts,moreskips
Siriintegration;over30mnadfreesongs;Beats1radiostation;curated
playlistsAvailableinover100countries
Over30mnadfreesongs;musicvideos;curatedmusicstations
Adfreestreamingwithunlimitedskips
Ondemandstreaming(25customizablesongdownloadsdaily)andad
freestreaming
Unlimitedaccesstomillionsofsongs;downloadsongs,albums,
playlists;personalizedradio
TIDALHiFihashighfidelitysound
InstalledBase
20mnpaidsubs,55mnfreesubs
79mnactiveusers,3.9mnpaidsubs
10mnpaidsubs(asofJan16)
Unknown
16mnfreeusers
Unknown
2.5mnsubs
1mn(asofSep15)
87
Exhibit 168: SECs net cash and major music streaming companies value
(U$bn)
70
60
50
40
30
20
10
0
SEC'snetcash
(2016E)
Spotify'sEV
PandoraMedia's Aspiro(TIDAL)'sEV
Marketcap
Note: Spotifys EV is based on Bloomberg reports on its latest funding round in June 2015 and TIDALs EV is based on
Business Insiders reports on its latest funding round in April 2015.
Source: Company data, Goldman Sachs Global Investment Research.
88
89
90
(Wtn)
Became #1intheworld
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
35
20%
30
25
15%
20
10%
15
10
5%
5
0
0%
1997
1998
1999
2000
2001
2002
SEC'sTFTLCDmarketshare
2003
2004
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
LCD
AMOLED
AMOLEDportion(RHS)
91
Flat
AMOLED
Flexible
AMOLED
Highend
Flat
AMOLED
LTPS
Midend
LTPS
aSi
aSi
Lowend
Model
GalaxyS
GalaxySII
GalaxyNote
GalaxySIII
GalaxyNoteII
GalaxyS4
GalaxyNote3
GalaxyRound
GalaxyS5
GalaxyNote4
GalaxyNoteEdge
GalaxyS6
GalaxyS6edge
GalaxyNote5
GalaxyS6edge+
GalaxyS7
GalaxyS7edge
Displaytype
RigidAMOLED
RigidAMOLED
RigidAMOLED
RigidAMOLED
RigidAMOLED
RigidAMOLED
RigidAMOLED
FlexibleAMOLED
RigidAMOLED
RigidAMOLED
FlexibleAMOLED
RigidAMOLED
FlexibleAMOLED
RigidAMOLED
FlexibleAMOLED
RigidAMOLED
FlexibleAMOLED
Displaysize
4.0inches
4.3inches
5.3inches
4.8inches
5.5inches
5.0inches
5.7inches
5.7inches
5.1inches
5.7inches
5.6inches
5.1inches
5.1inches
5.7inches
5.7inches
5.1inches
5.5inches
Resolution
Pixelperinch
480x800(WVGA)
233
480x800(WVGA)
217
800x1280(WXGA)
285
720x1280(HD)
306
720x1280(HD)
267
1080x1920(FHD)
441
1080x1920(FHD)
386
1080x1920(FHD)
386
1080x1920(FHD)
432
1440x2560(QHD)
515
1600x2560(WQXGA)
524
1440x2560(QHD)
577
1440x2560(QHD)
577
1440x2560(QHD)
518
1440x2560(QHD)
518
1440x2560(QHD)
577
1440x2560(QHD)
534
92
Flexible display includes curved, bended, and foldable display. This is the opposite of rigid
(or flat) display, which is not flexible and cannot be bent or curved. According to SECs
technology roadmap for flexible display, it can be categorized into different stages that
have different forms and curvature.
Exhibit 174: SEC is currently at the bended stage, while the next target is foldable display
SECs flexible display technology roadmap
The initial form of flexible display was curved display with a target curvature radius of
600mm (600R), and this form of flexible display was adopted in Galaxy Round launched in
2013 with a curvature of 400R. The next form of flexible display SEC used in its
smartphones was bended display with target curvature of 8R, adopted in Galaxy Note Edge,
Galaxy S6 Edge, Galaxy S6 Edge +, and Galaxy S7 Edge. SECs commercial products are
currently at this stage with Galaxy Note Edge having a multi curvature structure with 7R
and 13R, Galaxy S6 Edge has a curvature of 6.5R and 12R, and Galaxy S7 Edge has a quad
edge structure with a curvature of 25R at the top and bottom of the phone, while having a
four level curvature of 35R, 9.4R, 5.4R, and 3.8R at each side of the phone.
Exhibit 175: Radius of the curvature of Galaxy Note Edge is as small as 7mm
Galaxy Note Edge curvature structure
93
Exhibit 176: Galaxy S7 Edge has a quad edge display structure, with four sides of the
phone having a bended structure
Galaxy S7 edge flexible display structure
25R
SEC is currently aiming to launch a product with a foldable display, where one can fold and
unfold numerous times without causing it to crack or break and not affecting the quality of
display. The final target of flexible display is achieving curvature of close to zero, which is
essentially a stretchable display where it can be modified to any form.
94
of increasing share of notebook PCs, while both desktop PCs and notebook PCs shipment
shares have been declining since 2009 at the expense of increasing share of tablet PCs. We
believe that this historical trend indicates that users demand for better mobility has been
the main driver for product cycles.
(mnunits)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
250
200
150
100
50
Desktop
NotebookPC
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
Desktop
Tablet
NotebookPC
Tablet
Looking at the shipment trend of portable devices while MP3 players, digital still
cameras, and PMP players all had meaningful shipment shares until the mid-2000s, they
were significantly impacted by the launch of smartphones in the market. As listening to
music, taking photos, watching a video, etc. all became possible with a single device,
consumers did not need to buy individual devices. The convergence of functionalities has
led to smartphones becoming a single stop for various portable devices.
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1,600
1,400
1,200
1,000
800
600
400
200
0
MP3
DSC
PMP
Smartphone
MP3
DSC
PMP
Smartphone
We believe that flexible display will be able to meet the demand of better mobility by
reducing the size of the device, especially when the foldable form of flexible display is
commercialized. Several functionalities could be converged into a single device with
flexible display; for example, a single hardware device could function as a smartphone and
tablet PC or notebook PC.
Goldman Sachs Global Investment Research
95
Exhibit 183: A device could be interchangeable from tablet to smartphone with foldable
display
Foldable display concept
As we view foldable display will be able to provide consumers with better mobility along
with multiple devices potentially converging into one single device, commercialization of
foldable display will emerge as one of major drivers for the next round of the hardware
product cycle.
CoverGlass/Plastic
TouchPanel
ThinfilmEncap
OLED
TFT
FlexibleSubstrate
Source: Company data, Goldman Sachs Global Investment Research.
Model
Launch
Low/mid/high
Differentiating feature
Air interface
Screen technology
Size
Memory
NAND
Camera
CPU
Battery
Dimensions
Weight
Region
Operating system
96
Exhibit 186: Recently launched high-end phones are similar in terms of hardware specs
High-end phones launched in the past several months
Model
Launch
Low/mid/high
Differentiating feature
Air interface
Screen technology
Size
Memory
NAND
Camera
CPU
Battery
Dimensions
Weight
Region
Operating system
Samsung Galaxy S7
March 11, 2016
High
Samsung's flagship for 1H16
GSM/HSPA/LTE
Quad HD Super AM OLED
5.1 inch, 577ppi
4096 MB RAM
32/64GB internal
5MP/12MP OIS; Dual pixel
Snapdragon 820 / Exynos 8890
3000mAh
142.4x69.6x7.9mm
152g
Global
Android 6.0 (Marshmallow)
LG G5
April 2016
High
LG's flagship for 1H16
LTE/HSDPA/GSM
IPS LCD
5.3 inch, 554ppi
4096 MB RAM
32GB internal
8MP/8+16MP dual camera, OIS
Snapdragon 820
2800mAh
149.4x73.9x7.7mm
159g
Global
Android 6.0 (Marshmallow)
Huawei Mate 8
November 2016
High
Huawei's high end phablet
LTE/HSDPA/GSM
IPS LCD
6.0 inch, 368ppi
4096 MB RAM
64GB internal
8MP/16MP OIS
HiSilicon Kirin 950
4000mAh
157.1x80.6x7.9mm
185g
Global
Android 6.0 (Marshmallow)
Xiaomi Mi 5
March 2016
High
Xiaomi's flagship for 1H16
LTE/HSDPA/GSM
IPS LCD
5.15 inch, 428ppi
4096 MB RAM
128GB internal
5MP/16MP OIS
Snapdragon 820
3000mAh
144.6x69.2x7.3mm
139g
Asia
Android 6.0 (Marshmallow)
Exhibit 187: Smartphones with flexible AM OLED screens tend to be thinner, lighter, and have higher battery capacity
Comparison of thickness, weight, battery capacity of similar screen size flexible AM OLED and rigid AM OLED smartphones
(March 2016)
Company
Model
Screentype
Screensize
Thickness
Weight
BatteryCapacity
Samsung
GalaxyS6edge
FlexibleAMOLED
5.1inch
7mm
132g
2600mAh
Samsung
GalaxyJ5
RigidAMOLED
5.0inch
7.9mm
146g
2600mAh
Samsung
GalaxyS7edge
FlexibleAMOLED
5.5inch
7.7mm
157g
3600mAh
Samsung
GalaxyJ7
RigidAMOLED
5.5inch
7.5mm
171g
3000mAh
Samsung
GalaxyA7
RigidAMOLED
5.5inch
7.3mm
172g
3300mAh
Samsung
GalaxyS6edge+
FlexibleAMOLED
5.7inch
6.9mm
153g
3000mAh
Samsung
GalaxyNote5
RigidAMOLED
5.7inch
7.6mm
171g
3000mAh
97
Exhibit 188: Flexible AM OLED smartphones tend to have higher battery capacity with a
lighter body weight
Battery capacity vs. smartphone weight for SECs flagship and main smartphones (March 2016)
4,000
GalaxyS6edge+
GalaxyS6edge
GalaxyS7edge
Batterycapacity(mAh)
3,500
3,000
2,500
2,000
1,500
100
120
140
160
180
200
Weight(g)
Source: Company data.
Exhibit 189: Regardless of the screen size or battery capacity, flexible AM OLED
smartphones tend to have a thinner body
Thickness comparison for SECs main smartphones (March 2016)
(mm)
10
9
8
7
6
One issue with thickness, though, is that flexible AM OLED cannot have the conventional
on-cell touch screen panel (TSP) due to the lack of encapsulation glass, so it has to add an
additional base film in the structure and apply a single-layer TSP sensor on it. We therefore
believe that AM OLED makers are trying to find alternative options to reduce the thickness
of the display by working on a structure that applies TSP on the polarizer or on thin film
encapsulation.
98
(Wbn)
350
50%
300
0%
50%
250
100%
200
150%
150
200%
250%
100
300%
50
350%
400%
2001
2002
2003
Sales
2004
OPM
Through Samsung OLED, SDI established an AM OLED R&D line in February 2002, and
developed the worlds second full-color AM OLED after Japans Sanyo in 2002 and the
worlds largest 17 AM OLED in 2004. Building upon the success in development, in
November 2005, it decided to invest in the worlds first 4G (730x920) AM OLED mass
production fab (called A1) by investing W478bn. In September 2007, SDI started the first
successful AM OLED mass production, producing small size AM OLED (2) for mobile
phones and small electronic devices.
However, for the large size AM OLED, SEC also started to show increasing interest,
evidenced by the company also developing large size AM OLED (40) at an R&D stage in
2005. As both SDI and SEC were developing AM OLED display, there were increasing talk
about which company within the Samsung Group will carry on the AM OLED business.
Since AM OLED needed a large amount of investment each year, and SDI had a history of
handing over its TFT-LCD business to SEC in the early 1990s, many did not rule out the
possibility of the same happening in this case too.
SDI did decide in July 2008 to split off its AM OLED business, and Samsung Mobile Display
(SMD) was established in September 2008. SEC also sold its small/medium size LCD
business and AM OLED business to SMD in December 2008 and participated in the rights
offering by SMD in January 2009, and SMD became Samsung Groups main display
company with both SDI and SEC owning 50% stake each. After another rights offering in
March 2011, SECs stake in SMD increased to 64% while SDIs stake decreased to 36%.
Goldman Sachs Global Investment Research
99
Date
September2008
Janaury2009
March2011
Event
SMDwasformedbySDIsplittingoffitsAMOLEDbusiness
SMD'srights1stoffering
SMD'srights2ndoffering
SEC'sstake SDI'sstake
0%
100%
50%
50%
64%
36%
SEC increasing its ownership in SMD at an early stage in the evolution of the AM OLED
industry was prudent, in our view, as it had a much higher level of FCF compared with SDI
which was essential in order to make investments to develop technology at that nascent
stage of the industry. With the increased stake, we note that SEC was able to make key
investments starting 2010 when SMD made a decision to invest in a 5.5G (1300x1500) AM
OLED mass production fab (called A2), which is currently the main AM OLED factory that
produces most of the worlds smartphone AM OLED screens. A2 fab started mass
production in 2Q11.
Exhibit 193: SEC had much more cash than SDI to invest
during the early stages of the AM OLED industry
(Wbn)
(Wbn)
16,000
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2,000
2008
2009
2010
2011
2007
2008
2009
2010
2011
2012
4,000
SMDcapex
SEC
SDI
Starting with the Galaxy S smartphone launched in June 2010, SEC was able to leverage
SMDs AM OLED capacity on a large scale, and the continuous success of SECs flagship
smartphone models with AM OLED screens provided confidence to the company to
increase investment in the technology.
100
Exhibit 194: Starting with the Galaxy S smartphone, SEC was able to leverage AM OLED
capacity on a large scale
SECs flagship smartphone shipment trend
(mnunits)
35
30
25
20
15
10
5
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16E
2Q16E
3Q16E
4Q16E
GS
Note3
Note5
GS2
GS5
GS7
Note
Note4
GS7edge
GS3
GS6
Note6
Note2
GS6edge
GS4
GS6edge+
In February 2012, SEC decided to split off its LCD business into a new company called
Samsung Display, which was incorporated on April 3, 2012. Later that month, SEC
announced a merger between Samsung Display (pre-merger), SMD, and S-LCD (100%
owned subsidiary of Samsung Display which used to be a joint venture with Sony).
Samsung Display (post-merger) became the only remaining company since July 2012 with
all of Samsungs LCD and AM OLED panel related businesses being under its control. As
SEC was the 100% owner of the pre-merger SDC and 64% owner of SMD, it resulted in an
85% stake in the post-merger SDC while SDIs stake in SDC declined to 15%.
Exhibit 195: SDC (pre-merger), SMD, and S-LCD merged to become SDC (post-merger)
Company snapshot for SDC (per-merger), SMD, and S-LCD
Company
Business
Incorporationdate
Asset(asofend1Q12)
Employee(Asofend1Q12)
SamsungDisplay(premerger)
LCD
April3,2012
W20.0tn
22,050
SamsungMobileDisplay
LCDandAMOLED
September5,2008
W10.1tn
18,606
SLCD
LCD
April26,2004
W3.9tn
21
Exhibit 196: SEC had 85% stake in the post-merger SDC, while SDI had the remaining 15%
Change in SEC and SDIs stake in Samsung Display
SEC'sstake
SDI'sstake
SDC'stake
Total
SDC(premerger)
100%
SMD
64%
36%
100%
100%
SLCD
100%
100%
SDC(postmerger)
85%
15%
100%
101
After SDI started to work on flexible display technology in the early 2000s, it developed a
prototype 5.6 flexible AM OLED in 2006 and a 6.5 flexible AM OLED in 2009. SMD started
to develop flexible AM OLED panel process technology in 2008, and flexible AM OLED
product development in 2011. With success in AM OLED mass production in A1&A2 fabs
and the increasing lack of differentiation in SECs flagship smartphones, SDC converted
part of its A2 fab capacity into flexible AM OLED capacity in 2013. With this capacity, SEC
was able to launch the worlds first curved screen smartphone in Galaxy Round in October
2013. While Galaxy Round was not commercially successful nor did SEC actively market
the product, it opened up an opportunity for hardware innovation in smartphones.
Continuing on the success, in June 2014, SDC started to invest in the worlds first 6G
(1500x1850) AM OLED mass production fab (called A3), which planned to be a fab mainly
dedicated for flexible AM OLED production. Phase 1 of the A3 fab started mass production
in 2Q15, and along with the additional capacity converted into flexible AM OLED from A2
fab in 2H15, it has been providing capacity to mainly manufacture bended AM OLED
screens for the Galaxy Edge series smartphones.
Exhibit 197: We estimate that SDC currently has 35K/month 5.5G flexible AM OLED
capacity and 15K/month 6G capacity
SDCs flexible AM OLED capacity
Company
SamsungDisplay
SamsungDisplay
Fab
A2
A3
Generation FlexibleAMOLEDCapacity
5.5G
35K/month
6G
15K/month
As we believe that SDCs utilization rate has been running at close to full since 2H15 and
the demand for flexible AM OLED would only rise due to demand for differentiated display
internally, from other smartphone makers, as well as demand from other applications, we
think that SEC will actively make additional investments and continue to develop the
technology for flexible AM OLED to create innovative form factors.
Exhibit 198: Summary of Samsungs AM OLED history
Year
2000
2001
2002
2004
2004
2005
2005
2006
2007
2008
2008
2008
2009
2010
2010
2011
2011
2011
2012
2012
2013
2013
2014
2015
2015
Event
SDIstartstodevelopAMOLED
AJVwithJapan'sNEC,SamsungNECMobileDisplayiscreated
AMOLEDR&Dlineisestablished
SDIbuysoutNEC'sstakeinJVandchangesnametoSamsungOLED
SLCD,aLCDJVbetweenSECandSonyisestablished
SamsungOLEDismergedintoSDI
40"AMOLEDisdevelopedataR&Dstage
Developedaprototype5.6"flexibleAMOLED
MassproductioninA1fabbegins
SDIsplitsoffitsAMOLEDbusinesstocreateSMD
SECsellssmall/mediumLCDbusinessandAMOLEDbusinesstoSMD
SMDstartstodevelopflexibleAMOLEDpanelprocesstechnology
SECparticipatesinSMD'srightsoffering;stakeincreasedto50%
SMDdecidestoinvestina5.5Gfab(A2)
GalaxyS,thefirstflagshipmodelwithAMOLEDdisplayislaunched
SECparticipatesinSMD'srightsoffering;stakeincreasedto64%
MassproductioninA2fabbegins
FlexibleAMOLEDproductdevelopmentbegins
SECsplitsoffitsLCDbusinessandcreatesSamsungDisplay
SamsungDisplaymergeswithSMDandSLCD
SDCconvertspartofA2capacityintoflexibleAMOLEDcapacity
World'sfirstcurvedscreenphone,GalaxyRoundislaunched
SDCdecidestoinvestina6GflexibleAMOLEDfab(A3)
Phase1ofA3fabstartsmassproduction
SDCconvertspartofA2capacityintoflexibleAMOLEDcapacity
RelatedmainSamsungaffiliates
SDI
SDI
SDI
SDI
SEC
SDI
SEC
SDI
SDI
SDI,SMD
SEC,SMD
SEC,SDI,SMD
SEC,SDI,SMD
SEC,SDI,SMD
SEC
SEC,SDI,SMD
SEC,SMD
SEC,SMD
SEC
SEC,SMD,SDC
SEC,SDC
SEC
SEC,SDC
SEC,SDC
SEC,SDC
102
('000sqm)
25,000
(X)
16,000
2.5
14,000
20,000
2.0
12,000
10,000
15,000
1.5
8,000
10,000
1.0
6,000
4,000
5,000
0.5
2,000
0
0
2011
2013
2015
2017E
Rigid
2019E
2021E
2023E
0.0
2011
2025E
Flexible
2013
Rigid
2015
2017E
2019E
Flexible
2021E
2023E
2025E
Flexiblepricepremium(RHS)
(Wtn)
60
25%
50
20%
40
30
20
10
15%
10%
5%
2011
2013
2015
2017E
Rigid
2019E
2021E
2023E
Flexible
2025E
0%
2011
2013
2015
2017E
2019E
Rigid
Flexible
2021E
2023E
OPM(RHS)
2025E
103
104
Exhibit 203: Samsung Display dominates the global mobile AM OLED market.
Small/medium AM OLED global market share
100%
90%
80%
70%
60%
50%
99%
97%
95%
2013
2014
2015
40%
30%
20%
10%
0%
SamsungDisplay
LGDisplay
EverDisplay
Sony
eMagin
AUO
Source: IHS.
Innolux
4%
Truly
4%
Others
8%
AUO
6%
BOE
6%
LGDisplay
22%
BOE
4%
Truly
AUO 3%
4%
Others
8%
Samsung
Display
35%
Tianma
4%
Sharp
16%
Tianma
6%
JapanDisplay
18%
Sharp
10%
JapanDisplay
28%
Source: IHS.
LGDisplay
14%
Source: IHS.
105
30%
100%
17%
90%
25%
26%
80%
20%
37%
43%
47%
41%
36%
34%
2016
2017
70%
60%
15%
50%
10%
40%
56%
49%
30%
5%
20%
0%
10%
2011
2012
2013
2014
SamsungDisplay
LGDisplay
AUO
Innolux
BOE
CSOT
2015
Source: IHS.
0%
2013
2014
Taiwan
2015
Korea
Japan
China
Source: IHS.
120
100
Flexibletouch
panel
3% TFT
2%
Flexibledisplay
panel
3%
Flexibledisplay
mode
2%
80
60
40
Manufacturing
process
15%
20
0
Flexible
substrate
8%
Flexibledisplay
device
62%
Flexible
electrode
5%
Source: IHS.
Source: IHS.
106
Model
Launch
Low/mid/high
Differentiating feature
Air interface
Screen technology
Size
Memory
NAND
Camera
CPU
Battery
Dimensions
Weight
Region
Operating system
Samsung Omnia II
July 2009
High
Smartphone with AM OLED display
GSM/HSPA
WVGA AM OLED
3.7 inch, 252ppi
256 MB RAM
2/8/16 GB internal
VGA/5MP
Samsung S3C6410 800MHz
1500mAh
118x59.6x12.3mm
123g
Global
Windows Mobile 6.1 Professional
Samsung Galaxy S
June 2010
High
First flagship phone
GSM/HSPA
WVGA AM OLED
4.0 inch, 233ppi
512 MB RAM
8/16 GB internal
VGA/5MP
Hummingbird 1.0GHz Cortex-A8
1500mAh
122.4x64.2x9.9mm
119g
Global
Android 2.1 (Eclair)
100%
30%
95%
25%
90%
85%
20%
80%
15%
75%
70%
10%
65%
5%
60%
0%
55%
50%
5%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15
A2fabutilization
SamsungAMOLEDOPM(RHS)
107
Exhibit 212: SDC has been supplying rigid AM OLED to various external customers
SDCs major rigid AM OLED design wins at external customers
Device
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
Smartphone
TabletPC
TabletPC
TabletPC
TabletPC
TabletPC/laptop
Company
Pantech
HTC
Nokia
Motorola
Huawei
Pantech
Nokia
Nokia
Motorola
Motorola
Lenovo
Gionee
Vivo
YotaDevices
Oppo
Coolpad
Meizu
Huawei
Gionee
Huawei
Toshiba
Fujitsu
Dell
Dell
Lenovo
Product
Burst
OneS
Lumia900
RAZRMaxx
AscendP1s
VegaIron2
Lumia930
Lumia730
DroidTurbo
Nexus6
S90Sisley
ElifeS5.1
X5Max
YotaPhone2
R5
DazenX7
MX5
Nexus6P
ElifeE8
MateS
Excite7.7
ArrowsTabF03G
Venue87000
Venue107000
X1Yoga
Size
4.0"
4.3"
4.3"
4.3"
4.3"
5.3"
5.0"
4.7"
5.2"
6"
5.0"
4.8"
5.5"
5"
5.2"
5.2"
5.5"
5.7"
6.0"
5.5"
7.7"
10.5"
8.4"
10.5"
14"
Resolution
480x800(WVGA)
540x960(qHD)
480x800(WVGA)
540x960(qHD)
540x960(qHD)
1080x1920(FHD)
1080x1920(FHD)
720x1280(HD)
1440x2560(QHD)
1440x2560(QHD)
720x1280(HD)
720x1280(HD)
1080x1920(FHD)
1080x1920(FHD)
1080x1920(FHD)
1080x1920(FHD)
1080x1920(FHD)
1440x2560(QHD)
1440x2560(QHD)
1080x1920(FHD)
800x1280(WXGA)
1600x2560(WXGA)
1600x2560(WXGA)
1600x2560(WXGA)
1440x2560(QHD)
PPI
233
256
217
256
256
416
441
316
565
493
294
306
401
441
423
423
401
518
490
401
196
288
359
288
210
Releasedate
Jan.12
Apr.12
May12
May12
Sep.12
May14
Jul.14
Sep.14
Oct.14
Nov.14
Nov.14
Nov.14
Dec.14
Dec.14
Dec.14
Jan.15
Jul.15
Sep.15
Oct.15
Oct.15
Jul.12
Nov.14
Jan.15
May15
Apr.16
Exhibit 213: SDC has started to supply flexible AM OLED to external customers
SDCs major flexible AM OLED design wins from external customers
Device
Smartphone
Smartphone
Smartphone
Smartphone
Company
Motorola
Blackberry
Vivo
Vivo
Product
DroidTurbo2
Priv
Xplay5
Xplay5Elite
Size
5.4"
5.4"
5.43"
5.43"
Resolution
1440x2560(QHD)
1440x2560(QHD)
1440x2560(QHD)
1440x2560(QHD)
PPI
540
540
541
541
Releasedate
Oct.15
Nov.15
Mar.16
Mar.16
108
RGBpatterning
Encapsulation
Glassdetachment
Backend
Equipment
Batchfurnace
ELA
Cleaner
PECVD
Sputter
Stepper/scanner
Photoresistcoater
Wetetcher
Dryetcher
Photoresiststripper
Evaporator
Glassencap
Thinfilmencap
LLO
Logistics
Lasercutting
Testingequipment
Scriber
Companies
Terasemicon,Viatron
APSystems
KCTech,DMS,Semes
AppliedMaterials,SFAEngineering
Ulvac
Canon,Nikon
KCTech,DMS,Semes,TokyoElectron
Semes,DMS,KCTech
WonikIPS,ICD
Semes,DMS,KCTech,TokyoElectron
Tokki
APSystems
Kateeva,AppliedMaterials
APSystems
SFAEngineering,Toptec,Daifuku,ShibauraMechantronics
RorzeSystems,Toptec
RorzeSystems
SFAEngineering
Companies
DuksanNeolux,Merck,IdemitsuKosan,Doosan(MBK)
SamsungSDI,LGChem,Tosoh
SamsungSDI(Novaled)
DowChemical,DuksanNeolux
UDC
SamsungSDI,DuksanNeolux(UDC),NSCC
UDC
IdemitsuKosan,DowChemical,SFC
IdemitsuKosan
109
(Wtn)
60
30
50
25
20
40
15
30
10
20
5
10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E
Capex
EBITDA
5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E
FCF
110
111
In this section, we project SECs long-term earnings trajectory under three different
scenarios: base case (3 stars scenario which is in reference to its company name in
Chinese, , which means three stars), bull case (5 stars scenario), and bear case
(1 star scenario), in an attempt to estimate a theoretical value in each case using DCF
methodology (while our primary methodology is P/B vs ROE). In conclusion, our
analysis suggests that SECs 2025E theoretical valuations are W1.8mn and W0.7mn,
respectively, for the bull case and the bear case, while our base case implies a
theoretical DCF value of W1.2mn, which is largely in line with our 12-m P/B ROEbased target price of W1.3mn.
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E CAGR(1525E)
26,283 33,264 41,778 52,303 63,810 77,210 92,651 109,329 126,821 145,845 167,721
0.76 0.51 0.42 0.35 0.30 0.25 0.21 0.18 0.16 0.14 0.13
0.41 0.32 0.26 0.21 0.19 0.16 0.15 0.13 0.12 0.11 0.10
47%
38%
37%
38%
37%
35%
32%
28%
25%
23%
20%
20%
17%
13%
17,149 27,357 38,868 54,399 75,071 99,844 125,804 157,255 191,851 232,139 278,567
0.59 0.42 0.31 0.24 0.19 0.15 0.12 0.10 0.09 0.07 0.06
0.50 0.33 0.24 0.18 0.14 0.11 0.09 0.08 0.06 0.05 0.05
15%
21%
23%
24%
25%
25%
25%
25%
25%
25%
25%
32%
20%
21%
1,758 2,569 3,304 4,576 6,305 8,457 11,178 14,332 17,604 20,435 22,938
6,313 5,049 4,188 3,507 3,052 2,707 2,436 2,220 2,072 1,958 1,864
5,629 4,425 3,618 2,977 2,500 2,265 2,101 1,965 1,849 1,759 1,677
11%
12%
14%
15%
18%
16%
14%
12%
11%
10%
10%
29%
11%
11%
320 319 311 308 298 285 271 257 244 231 218
27%
26%
24%
22%
22%
21%
20%
19%
18%
17%
16%
11%
11%
10%
9%
9%
9%
9%
9%
9%
10%
10%
62%
64%
66%
69%
69%
70%
71%
72%
73%
73%
74%
233 217 204 196 188 179 170 162 153 146 138
206 194 189 186 179 172 166 160 153 148 144
11%
11%
7%
5%
4%
4%
3%
1%
0%
2%
4%
15%
14%
12%
10%
9%
9%
8%
7%
6%
4%
2%
8%
6%
5%
3%
1%
1%
2%
3%
3%
3%
3%
5%
6%
1%
2%
2%
2%
3%
4%
6%
8%
11%
4%
0.1
0.1
0.0
0.1
0.1
0.0
0.3
0.3
0.0
0.2
0.2
0.0
0.6
0.6
0.0
0.4
0.4
0.0
1.2
1.2
0.0
0.8
0.8
0.0
1.8
1.8
0.0
1.2
1.2
0.0
DRAM costreductionwillbelowerthanASPerosiongiven
deceleratingbitshipmentgrowthfrommigration,resultingin
gradualdecreaseinprofitability.
NAND costreductionwillbeslightlyhigherthanASPerosionon
relativelystrongbitshipmentgrowthondemandgrowth,
leadingtostableprofitability.
Weexpectstrongearningsmomentum fromOLEDin2019E/2020E
driven bycommercializationoffoldableOLED.
OPMof10%in2025E,assumingincreasingcompetition.
Base caseassumesgradualdecreasesinsmartphoneshipment
andASPwithhighendmixfallingto16%andlowendmix
increasingto74%by2025E.
5%
4%
Weexpectmid/lowendsmartphonestogeneratelosses, leading
toOPMof4%forSEC'ssmartphonebusinessin2025E.
48%
47%
As perourbasecaseassumption,SEC'willbeabletogenerate
unitrevenueof$5.0withunitEBITof$3.3by2025Efrom
SamsungPay.
Incorporating long-term projections for each division, we expect SECs revenue to remain
flattish by 2025E with increasing sales from semiconductors and OLED largely offset by
sharp dips in smartphone revenue. Under the three stars scenario, SECs earnings will
gradually decrease in the long term, despite flattish revenue trend. We estimate SECs EBIT
to decline to W17tn by 2025E from W26tn in in 2015, mainly due to ongoing margin erosion
for its smartphone business despite relatively healthy earnings from its components
businesses including semiconductors and display panels.
112
2013
228.69
67.76
37.44
23.71
14.00
9.54
0.17
13.73
29.84
12.66
17.18
0.48
138.82
134.57
112.26
8.89
13.42
2014
206.21
65.79
39.72
29.32
19.70
9.58
0.05
10.40
25.73
9.44
16.29
0.34
111.76
107.41
89.78
7.02
10.61
4.25
50.31
33.36
16.95
(28.20)
36.79
10.00
6.88
6.28
4.15
2.12
0.01
0.60
2.98
2.71
0.27
0.14
24.96
24.78
23.87
0.17
0.74
4.35
50.19
32.45
17.74
(21.53)
25.03
9.41
8.78
10.21
8.44
1.76
0.00
(1.43)
0.67
0.38
0.29
(0.03)
14.56
14.43
13.64
0.36
0.43
0.18
1.67
1.39
0.28
0.16
16%
15%
18%
26%
30%
22%
6%
4%
10%
21%
2%
18%
18%
21%
2%
6%
0.13
1.19
1.02
0.17
(0.14)
12%
14%
22%
35%
43%
18%
2%
-14%
3%
4%
2%
13%
13%
15%
5%
4%
4%
3%
4%
2%
-1%
3%
2%
3%
1%
1%
2015
200.65
75.02
47.59
34.29
22.71
11.46
0.13
13.30
27.49
12.55
14.94
(0.06)
103.56
100.51
86.99
5.80
7.71
0.01
0.01
3.05
46.90
29.22
17.68
(24.83)
26.41
14.89
12.79
12.36
10.60
1.76
(0.00)
0.43
2.29
1.36
0.93
(0.19)
10.13
9.97
9.64
0.13
0.19
0.01
0.01
0.16
1.25
0.99
0.26
0.14
13%
20%
27%
36%
47%
15%
-1%
3%
8%
11%
6%
10%
10%
11%
2%
3%
68%
5%
3%
3%
1%
-1%
2016E
202.75
76.24
48.00
34.28
20.45
13.81
0.02
13.72
27.84
15.57
12.27
0.40
101.55
98.37
85.35
5.88
7.04
0.09
0.09
3.19
50.14
31.54
18.60
(25.19)
24.05
12.29
11.16
10.64
7.73
2.90
0.00
0.53
1.12
1.92
(0.80)
0.00
9.17
9.11
8.86
0.07
0.11
0.06
0.06
0.06
2.47
2.04
0.42
0.13
12%
16%
23%
31%
38%
21%
2%
4%
4%
12%
-7%
9%
9%
10%
1%
2%
69%
2%
5%
6%
2%
-1%
2017E
200.11
78.21
49.31
35.47
20.83
14.62
0.02
13.84
28.50
16.61
11.90
0.40
93.92
90.62
77.90
5.91
6.59
0.23
0.23
3.30
51.98
32.65
19.32
(24.00)
22.39
14.33
11.95
11.04
7.70
3.35
0.00
0.91
2.38
2.26
0.12
0.00
5.85
5.78
5.46
0.07
0.09
0.16
0.16
0.07
2.23
1.80
0.43
(0.02)
11%
18%
24%
31%
37%
23%
2%
7%
8%
14%
1%
6%
6%
7%
1%
1%
68%
2%
4%
6%
2%
0%
2018E
202.37
82.18
51.37
37.40
21.86
15.53
0.02
13.97
30.41
19.25
11.16
0.40
90.08
86.66
74.12
5.71
6.44
0.39
0.39
3.42
54.11
34.27
19.83
(24.00)
22.28
16.39
13.17
12.04
8.37
3.67
0.00
1.13
3.21
2.91
0.30
0.00
4.09
4.01
3.59
0.07
0.09
0.27
0.27
0.08
2.02
1.61
0.41
(0.22)
11%
20%
26%
32%
38%
24%
2%
8%
11%
15%
3%
5%
5%
5%
1%
1%
68%
2%
4%
5%
2%
1%
2019E
200.65
88.60
54.91
39.83
22.66
17.14
0.02
15.08
33.69
23.09
10.60
0.40
82.75
79.23
67.07
5.54
5.99
0.63
0.63
3.52
55.87
35.65
20.23
(26.58)
22.66
17.99
13.92
12.56
8.35
4.21
0.00
1.36
4.07
4.18
(0.11)
0.00
3.58
3.51
3.02
0.03
0.03
0.43
0.43
0.07
1.12
0.71
0.40
(0.03)
11%
20%
25%
32%
37%
25%
1%
9%
12%
18%
-1%
4%
4%
4%
1%
1%
68%
2%
2%
2%
2%
0%
2020E
200.24
95.25
57.71
41.57
23.31
18.24
0.02
16.14
37.54
27.47
10.07
0.40
76.53
72.93
61.22
5.37
5.57
0.77
0.77
3.59
57.05
36.72
20.33
(28.57)
22.18
18.45
14.17
12.55
8.07
4.48
0.00
1.61
4.28
4.49
(0.20)
0.00
2.82
2.78
2.24
0.01
0.01
0.52
0.52
0.04
0.94
0.73
0.20
(0.03)
11%
19%
25%
30%
35%
25%
1%
10%
11%
16%
-2%
4%
4%
4%
0%
0%
68%
1%
2%
2%
1%
0%
2021E
199.60
101.99
59.75
42.64
23.78
18.85
0.02
17.11
42.24
32.68
9.57
0.40
70.32
66.65
55.30
5.21
5.23
0.91
0.91
3.67
57.88
37.45
20.43
(30.60)
21.23
18.22
14.02
12.30
7.50
4.81
0.00
1.71
4.21
4.50
(0.29)
0.00
2.08
2.04
1.40
0.01
0.01
0.62
0.62
0.04
0.95
0.75
0.20
(0.03)
11%
18%
23%
29%
32%
25%
1%
10%
10%
14%
-3%
3%
3%
3%
0%
0%
68%
1%
2%
2%
1%
0%
2022E
199.25
108.70
61.43
43.46
24.13
19.32
0.02
17.96
47.27
38.18
9.09
0.40
64.80
61.06
50.03
5.06
4.92
1.05
1.05
3.74
58.36
37.82
20.53
(32.61)
19.96
17.69
13.56
11.77
6.84
4.93
0.00
1.80
4.12
4.40
(0.27)
0.00
1.35
1.31
0.70
(0.05)
(0.05)
0.71
0.71
0.04
0.96
0.76
0.21
(0.03)
10%
16%
22%
27%
28%
25%
1%
10%
9%
12%
-3%
2%
2%
1%
-1%
-1%
67%
1%
2%
2%
1%
0%
2023E
198.90
115.26
62.85
44.16
24.35
19.80
0.02
18.68
52.41
43.78
8.63
0.40
59.42
55.64
44.93
4.90
4.67
1.13
1.13
3.78
58.80
38.20
20.60
(34.58)
18.48
17.47
13.02
11.15
6.10
5.05
0.00
1.87
4.46
4.71
(0.26)
0.00
0.55
0.54
(0.03)
(0.10)
(0.09)
0.75
0.75
0.02
0.48
0.38
0.10
(0.03)
9%
15%
21%
25%
25%
25%
1%
10%
9%
11%
-3%
1%
1%
0%
-2%
-2%
67%
1%
1%
1%
1%
0%
2024E
197.93
120.24
64.03
44.78
24.64
20.12
0.02
19.24
56.21
48.01
8.20
0.40
54.53
50.71
40.29
4.76
4.44
1.23
1.23
3.81
59.24
38.58
20.66
(36.07)
17.54
17.23
12.60
10.68
5.55
5.13
0.00
1.92
4.63
4.87
(0.25)
0.00
(0.14)
(0.16)
(0.80)
(0.10)
(0.09)
0.82
0.82
0.02
0.49
0.39
0.10
(0.04)
9%
14%
20%
24%
23%
25%
1%
10%
8%
10%
-3%
0%
0%
-2%
-2%
-2%
66%
1%
1%
1%
1%
0%
2025E
197.11
124.67
65.58
45.76
25.22
20.52
0.02
19.82
59.09
51.30
7.79
0.40
50.15
46.30
36.16
4.61
4.22
1.31
1.31
3.85
59.69
38.97
20.72
(37.40)
16.90
17.15
12.23
10.25
5.02
5.23
0.00
1.98
4.91
5.15
(0.23)
0.00
(0.70)
(0.72)
(1.41)
(0.09)
(0.08)
0.86
0.86
0.02
0.49
0.39
0.10
(0.04)
9%
14%
19%
22%
20%
25%
1%
10%
8%
10%
-3%
-1%
-2%
-4%
-2%
-2%
66%
1%
1%
1%
1%
0%
113
and (4) general discounts on Korean companies given higher geopolitical risks. So as to
reflect the historical discount (Exhibit 221), in our DCF valuation, we apply 50% discount to
its net cash position for 2016E.
0%
0%
10%
10%
20%
20%
Avg.discount
since2005=
44%
30%
40%
Avg.discount
since2005=
52%
30%
40%
50%
50%
60%
60%
70%
70%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
80%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
P/Bpremium/(discount)vs.globalpeers
CashadjustedP/Epremium/(discount)vs.globalpeers
Averagediscountsince2005
Averagediscountsince2005
Our DCF cross check (assuming 9.4% WACC and 1% terminal growth rate) implies SECs
theoretical valuation at W1.2mn per share, largely in line with our 12-m P/B-ROE-based
target price of W1.3mn.
Exhibit 222: SECs theoretical valuation based on DCF cross-check under three stars scenario
DCF valaution
WACC calculation
1) Equity component
Samsung Electronics cost of equity
9.9%
2) Debt component
Cost of debt
Tax rate
After-tax cost of debt
3.5%
25%
2.6%
WACC
9.4%
1.0%
143,155
40,870
-65,421
50%
6,403
169,463
138.4
1,224,664
2016E
202,749
11.9%
24,054
6,650
22,631
-7,105
20,000
27,140
2017E
200,111
-1%
11.2%
22,392
-7%
6,456
24,497
463
23,000
16,970
-37.5%
2018E
202,372
1%
11.0%
22,283
0%
6,547
26,516
1,118
24,000
17,133
1.0%
2019E
200,646
-1%
11.3%
22,659
2%
6,560
26,650
-214
26,000
16,963
-1.0%
2020E
200,244
0%
11.1%
22,179
-2%
6,534
27,167
-64
27,040
15,836
-6.6%
2021E
199,595
0%
10.6%
21,226
-4%
6,381
27,693
-104
28,122
14,520
-8.3%
2022E
199,247
0%
10.0%
19,964
-6%
6,139
28,230
-56
29,246
12,864
-11.4%
2023E
198,897
0%
9.3%
18,479
-7%
5,827
28,778
68
30,416
10,945
-14.9%
2024E
197,933
0%
8.9%
17,538
-5%
5,633
29,336
-155
31,633
9,763
-10.8%
2025E
197,111
0%
8.6%
16,902
-4%
5,503
30,182
248
32,898
8,434
-13.6%
114
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E CAGR(1525E)
26,283 33,643 42,390 52,563 64,127 77,594 93,113 109,873 128,552 149,120 171,488
0.76 0.51 0.41 0.35 0.30 0.25 0.21 0.18 0.16 0.14 0.13
0.41 0.32 0.26 0.22 0.19 0.16 0.14 0.13 0.12 0.11 0.10
47%
38%
37%
37%
37%
36%
34%
31%
28%
25%
22%
21%
17%
13%
17,149 27,438 40,334 57,275 79,039 106,703 138,714 173,393 215,007 262,308 314,770
0.59 0.42 0.31 0.25 0.19 0.16 0.13 0.10 0.09 0.07 0.06
0.50 0.33 0.25 0.19 0.14 0.11 0.09 0.07 0.06 0.05 0.04
15%
21%
21%
23%
25%
27%
28%
28%
28%
28%
28%
34%
20%
22%
1,758 2,569 3,304 4,576 6,390 8,770 11,906 15,655 19,823 23,815 27,338
6,313 5,050 4,188 3,507 3,049 2,706 2,436 2,221 2,073 1,958 1,863
5,629 4,426 3,618 2,977 2,499 2,265 2,086 1,949 1,833 1,742 1,659
11%
12%
14%
15%
18%
16%
14%
12%
12%
11%
11%
32%
11%
11%
320 368 431 509 568 613 650 673 691 704 717
27%
22%
18%
15%
13%
12%
11%
11%
11%
11%
11%
11%
8%
5%
4%
3%
3%
3%
3%
3%
3%
3%
62%
70%
77%
81%
84%
85%
86%
86%
87%
87%
87%
233 186 156 134 122 113 107 104 101 99 98
206 178 149 129 116 108 102 98 96 94 93
11%
4%
4%
4%
4%
5%
5%
5%
5%
6%
6%
15%
13%
12%
11%
10%
9%
8%
8%
7%
7%
7%
2%
2%
2%
2%
2%
2%
8%
4%
1%
1%
2%
5%
14%
7%
5%
2%
1%
3%
4%
5%
6%
6%
8%
0.0
0.0
0.0
0.0
0.0
0.0
0.3
0.3
0.0
0.2
0.2
0.0
1.2
1.1
0.0
0.8
0.8
0.0
1.9
1.8
0.1
1.2
1.2
0.0
2.9
2.7
0.2
1.8
1.8
0.1
Bullcaseassumesslightlyhigher DRAMprofitabilitythanbase
caseduetohighershipmentmostlyinlightofbetterinhouse
demandonhigherhardwareshipment.
Bullcaseassumesslightlyhigher NANDmarginthanourbase
caseduetohighershipmentcoupledwithhighercost
reduction.
Bullcaseassumesslightlyhigher OLEDprofitabilitythanbase
caseduetohighershipmentonbetterinhouseshipmentfor
SEC'shardwaredevices.
Under "hardwareasaplatform"businessmodel,weassume
SECwouldsubstantiallyincreasesmartphoneshipmentatthe
expenseofaggressivepricing.
8%
8%
Inlightofhigherscale,SEC'ssmartphoneswillshowfastercost
reduction,resultinginstableprofitabilitytrendby2025E.
92%
88%
Ourbull casesuggeststhatSamsungPayandSEC'sM
commercewillbeabletogenerateunitrevenueof$20.9with
unitEBITof$11.1by2025E.
Hardware: Solid earnings from mobile services on top of better hardware earnings
Under our bull case scenario, we assume that adopting the hardware-as-a-platform
business model could rapidly increase smartphone share for SEC at the expense of
aggressive pricing. Despite a sharp dip in smartphone profitability at the early stage of the
business model, we assume SEC would gradually improve profitability in light of less
competition and an improving cost structure with increasing scale. Our five stars scenario
expects SECs smartphone revenue to reach W84tn (vs. three stars scenarios of W36tn)
with OP margin of 6% (vs. -4% OPM for three stars scenario) in 2025E.
115
Exhibit 224: SECs smartphone earnings estimates by 2025E under five stars scenario
Sales(KRWbn)
Highend
Midrange
Lowend
OP(KRWbn)
Highend
Midrange
Lowend
OPM(%)
Highend
Midrange
Lowend
Shipment(mn)
Highend
Midrange
Lowend
Productmix(%)
Highend
Midrange
Lowend
ASP(US$)
Highend
Midrange
Lowend
Sequentialchange(%)
Shipment
Highend
Midrange
Lowend
ASP
Highend
Midrange
Lowend
2011
31,304
16,312
9,492
5,500
6,380
4,573
1,318
489
20%
28%
14%
9%
96
32
33
30
2012
73,738
45,918
13,465
14,356
18,324
13,419
2,664
2,241
25%
29%
20%
16%
213
81
52
80
2013
105,668
72,573
12,804
20,290
23,605
19,184
1,655
2,767
22%
26%
13%
14%
320
133
45
142
2014
86,263
54,772
10,266
21,226
13,523
10,898
1,197
1,428
16%
20%
12%
7%
316
105
41
171
2015
84,336
50,424
10,109
23,804
9,600
7,535
788
1,277
11%
15%
8%
5%
320
86
36
198
2016E
81,969
49,195
8,151
24,623
3,380
6,401
319
(3,340)
4%
13%
4%
14%
368
81
29
258
2017E
80,891
46,273
6,258
28,359
3,609
5,610
57
(2,057)
4%
12%
1%
7%
431
78
23
330
2018E
82,064
43,987
5,464
32,613
3,271
4,938
(62)
(1,606)
4%
11%
1%
5%
509
76
21
413
2019E
82,801
42,245
4,926
35,630
3,680
4,360
(107)
(574)
4%
10%
2%
2%
568
74
19
474
2020E
83,245
40,987
4,633
37,625
3,946
3,855
(100)
191
5%
9%
2%
1%
613
73
18
522
2021E
83,747
40,247
4,449
39,051
4,316
3,413
(96)
999
5%
8%
2%
3%
650
74
18
558
2022E
83,636
39,837
4,404
39,395
4,315
3,007
(95)
1,404
5%
8%
2%
4%
673
74
18
581
2023E
83,600
39,430
4,404
39,765
4,317
2,604
(95)
1,808
5%
7%
2%
5%
691
75
18
598
2024E
83,985
39,426
4,404
40,155
4,721
2,604
(95)
2,213
6%
7%
2%
6%
704
76
18
610
2025E
84,374
39,422
4,403
40,548
4,743
2,603
(95)
2,235
6%
7%
2%
6%
717
77
18
622
34%
35%
32%
296
457
260
164
38%
24%
37%
307
501
229
160
42%
14%
44%
302
498
260
131
33%
13%
54%
259
498
240
118
27%
11%
62%
233
521
247
106
22%
8%
70%
186
505
235
80
18%
5%
77%
156
495
225
72
15%
4%
81%
134
485
219
66
13%
3%
84%
122
475
214
63
12%
3%
85%
113
465
212
60
11%
3%
86%
107
456
210
58
11%
3%
86%
104
447
208
57
11%
3%
87%
101
438
206
55
11%
3%
87%
99
434
204
55
11%
3%
87%
98
429
202
54
290%
121%
824%
378%
19%
289%
176%
55%
123%
152%
59%
163%
4%
10%
12%
2%
50%
64%
14%
77%
2%
1%
14%
18%
1%
21%
10%
21%
14%
0%
8%
10%
1%
18%
11%
16%
10%
5%
3%
10%
15%
5%
20%
30%
20%
3%
5%
25%
17%
4%
20%
28%
16%
2%
4%
10%
18%
3%
10%
25%
14%
2%
3%
8%
12%
2%
8%
15%
10%
2%
2%
5%
8%
1%
5%
10%
7%
2%
1%
4%
6%
0%
3%
7%
5%
2%
1%
3%
4%
1%
0%
4%
4%
2%
1%
3%
3%
1%
1%
3%
3%
2%
1%
2%
2%
1%
1%
2%
1%
1%
1%
1%
2%
1%
1%
2%
1%
1%
1%
1%
More importantly, we assume SEC will be able to generate solid earnings from mobile
services such as Samsung Pay and m-commerce. As per our bull-case scenario, SECs
mobile services will post sales of W18tn with EBIT of W10tn in 2025E.
Exhibit 225: SECs hardware business earnings estimates by 2025E under the five stars scenario
2011
Sales (W tn)
IM (IT & Mobile communications)
Mobile
Handset
PC
Tablet
Mobile service
Mobile payment
M-commerce
Equipment and others
CE (Consumer Electronics)
VD (Visual Display)
Appliances and others
Operating Profit (W tn)
IM (IT & Mobile communications)
Mobile
Handset
PC
Tablet
Mobile service
Mobile payment
M-commerce
Equipment and others
CE (Consumer Electronics)
VD (Visual Display)
Appliances and others
OP Margin (%)
IM (IT & Mobile communications)
Mobile
Handset
PC
Tablet
Mobile Payment
Equipment and others
CE (Consumer Electronics)
VD (Visual Display)
Appliances and others
2012
2013
2014
67.44
62.56
50.72
8.96
2.89
105.84
101.64
87.79
7.58
6.28
138.82
134.57
112.26
8.89
13.42
111.76
107.41
89.78
7.02
10.61
4.88
47.02
34.80
12.22
4.20
48.31
34.11
14.20
4.25
50.31
33.36
16.95
4.35
50.19
32.45
17.74
8.15
8.00
7.87
0.16
(0.03)
19.41
19.31
18.92
0.21
0.19
24.96
24.78
23.87
0.17
0.74
14.56
14.43
13.64
0.36
0.43
0.15
1.39
1.31
0.08
0.10
2.33
1.98
0.35
0.18
1.67
1.39
0.28
0.13
1.19
1.02
0.17
12%
13%
16%
2%
-1%
18%
19%
22%
3%
3%
18%
18%
21%
2%
6%
13%
13%
15%
5%
4%
3%
3%
4%
1%
2%
5%
6%
2%
4%
3%
4%
2%
3%
2%
3%
1%
2016E
2017E
2018E
2019E
103.56
100.52
87.01
5.80
7.71
0.01
0.01
3.04
46.90
29.22
17.68
2015
98.17
94.98
81.97
5.88
7.04
0.09
0.09
3.19
50.14
31.54
18.60
96.92
93.62
80.89
5.91
6.59
0.23
0.23
3.30
51.98
32.65
19.32
98.02
94.60
82.06
5.71
6.44
0.39
0.39
3.42
54.11
34.27
19.83
99.82
96.30
82.80
5.54
5.99
1.97
1.83
0.14
3.52
55.87
35.65
20.23
100.72
97.13
83.24
5.37
5.57
2.94
2.27
0.67
3.59
57.05
36.72
20.33
102.00
98.33
83.75
5.21
5.23
4.14
2.64
1.50
3.67
57.88
37.45
20.43
10.13
9.98
9.65
0.13
0.19
0.01
0.01
0.15
1.25
0.99
0.26
9.23
9.17
8.92
0.07
0.11
0.06
0.06
0.06
2.47
2.04
0.42
6.01
5.94
5.62
0.07
0.09
0.16
0.16
0.07
2.23
1.80
0.43
4.36
4.28
3.86
0.07
0.09
0.27
0.27
0.08
2.02
1.61
0.41
5.06
4.98
3.68
0.03
0.03
1.25
1.21
0.04
0.07
1.12
0.71
0.40
5.72
5.69
3.95
0.01
0.01
1.72
1.48
0.23
0.04
0.94
0.73
0.20
6.69
6.65
4.32
0.01
0.01
2.31
1.71
0.60
0.04
0.95
0.75
0.20
9%
10%
11%
1%
2%
69%
2%
5%
6%
2%
6%
6%
7%
1%
1%
68%
2%
4%
6%
2%
4%
5%
5%
1%
1%
68%
2%
4%
5%
2%
5%
5%
4%
1%
1%
63%
2%
2%
2%
2%
6%
6%
5%
0%
0%
58%
1%
2%
2%
1%
7%
7%
5%
0%
0%
56%
1%
2%
2%
1%
10%
10%
11%
2%
3%
68%
5%
3%
3%
1%
2020E
2021E
2022E
102.95
99.21
83.64
5.06
4.92
5.60
2.93
2.67
3.74
58.36
37.82
20.53
2023E
105.25
101.47
83.60
4.90
4.67
8.30
3.17
5.13
3.78
58.80
38.20
20.60
2024E
109.49
105.67
83.98
4.76
4.44
12.49
3.50
8.99
3.81
59.24
38.58
20.66
2025E
115.04
111.19
84.37
4.61
4.22
17.99
3.80
14.18
3.85
59.69
38.97
20.72
7.27
7.23
4.31
(0.05)
(0.05)
3.02
1.90
1.12
0.04
0.96
0.76
0.21
8.50
8.48
4.32
(0.10)
(0.09)
4.35
2.05
2.31
0.02
0.48
0.38
0.10
11.13
11.11
4.72
(0.10)
(0.09)
6.57
2.25
4.32
0.02
0.49
0.39
0.10
14.15
14.13
4.74
(0.09)
(0.08)
9.57
2.45
7.12
0.02
0.49
0.39
0.10
7%
7%
5%
-1%
-1%
54%
1%
2%
2%
1%
8%
8%
5%
-2%
-2%
52%
1%
1%
1%
1%
10%
11%
6%
-2%
-2%
53%
1%
1%
1%
1%
12%
13%
6%
-2%
-2%
53%
1%
1%
1%
1%
116
Exhibit 226: SECs semiconductor earnings estimates by 2025E under five stars scenario
2011
Sales (W tn)
Semiconductor
Memory
DRAM
NAND
Other memory (SRAM and NOR)
System LSI
Operating Profit (W tn)
Semiconductor
Memory
DRAM
NAND
Other memory (SRAM and NOR)
System LSI
OP Margin (%)
Semiconductor
Memory
DRAM
NAND
Other memory (SRAM and NOR)
System LSI
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
36.99
22.71
13.38
8.82
0.51
10.94
34.89
20.86
12.23
8.26
0.38
13.46
2012
37.44
23.71
14.00
9.54
0.17
13.73
2013
39.72
29.32
19.70
9.58
0.05
10.40
2014
47.59
34.29
22.71
11.46
0.13
13.30
2015
48.21
34.48
20.66
13.80
0.02
13.72
50.16
36.32
21.08
15.22
0.02
13.84
52.80
38.84
21.96
16.86
0.02
13.97
56.53
41.17
22.77
18.38
0.02
15.36
59.88
43.29
23.42
19.85
0.02
16.59
62.56
44.81
23.89
20.90
0.02
17.75
64.50
45.68
24.24
21.42
0.02
18.82
66.50
46.74
24.68
22.05
0.02
19.76
68.16
47.80
25.19
22.59
0.02
20.35
69.61
48.85
25.78
23.05
0.02
20.76
6.33
4.84
2.97
1.83
0.03
1.49
4.17
2.84
1.81
1.01
0.01
1.38
6.88
6.28
4.15
2.12
0.01
0.60
8.78
10.21
8.44
1.76
0.00
(1.43)
12.79
12.36
10.60
1.76
(0.00)
0.43
11.31
10.78
7.84
2.94
0.00
0.53
11.99
11.08
7.84
3.24
0.00
0.91
13.23
12.10
8.16
3.93
0.00
1.13
14.65
13.11
8.46
4.65
0.00
1.54
15.75
13.92
8.53
5.39
0.00
1.83
15.98
14.03
8.17
5.86
0.00
1.95
15.62
13.55
7.55
6.01
0.00
2.07
15.45
13.08
6.90
6.18
0.00
2.37
15.00
12.55
6.22
6.34
0.00
2.44
14.66
12.17
5.71
6.46
0.00
2.49
17%
21%
22%
21%
7%
14%
12%
14%
15%
12%
4%
10%
18%
26%
30%
22%
6%
4%
22%
35%
43%
18%
2%
-14%
27%
36%
47%
15%
-1%
3%
23%
31%
38%
21%
2%
4%
24%
31%
37%
21%
2%
7%
25%
31%
37%
23%
2%
8%
26%
32%
37%
25%
1%
10%
26%
32%
36%
27%
1%
11%
26%
31%
34%
28%
1%
11%
24%
30%
31%
28%
1%
11%
23%
28%
28%
28%
1%
12%
22%
26%
25%
28%
1%
12%
21%
25%
22%
28%
1%
12%
Exhibit 227: SECs display panel earnings estimates by 2025E under five stars scenario
2011
Sales (W tn)
Display Panel
AM-OLED
LCD and others
Operating Profit (W tn)
Display Panel
AM-OLED
LCD and others
OP Margin (%)
Display Panel
AM-OLED
LCD and others
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
29.23
4.35
24.88
33.02
9.49
23.53
29.84
12.66
17.18
25.73
9.44
16.29
27.49
12.55
14.94
27.84
15.57
12.27
28.50
16.61
11.90
30.41
19.25
11.16
33.98
23.38
10.60
38.55
28.48
10.07
44.37
34.81
9.57
50.81
41.72
9.09
57.94
49.31
8.63
64.14
55.94
8.20
68.91
61.11
7.79
(0.39)
0.63
(1.02)
3.22
2.18
1.04
2.98
2.71
0.27
0.67
0.38
0.29
2.29
1.36
0.93
1.12
1.92
(0.80)
2.38
2.26
0.12
3.21
2.91
0.30
4.11
4.22
(0.11)
4.44
4.64
(0.20)
4.72
5.00
(0.29)
4.83
5.11
(0.27)
5.45
5.71
(0.26)
5.91
6.16
(0.25)
6.45
6.69
(0.23)
10%
23%
4%
10%
21%
2%
8%
14%
1%
11%
15%
3%
12%
18%
-1%
12%
16%
-2%
11%
14%
-3%
10%
12%
-3%
9%
12%
-3%
9%
11%
-3%
9%
11%
-3%
-1%
15%
-4%
2012
2013
2014
3%
4%
2%
2015
8%
11%
6%
4%
12%
-7%
117
2013
228.69
67.76
37.44
23.71
14.00
9.54
0.17
13.73
29.84
12.66
17.18
0.48
138.82
134.57
112.26
8.89
13.42
2014
206.21
65.79
39.72
29.32
19.70
9.58
0.05
10.40
25.73
9.44
16.29
0.34
111.76
107.41
89.78
7.02
10.61
4.25
50.31
33.36
16.95
(28.20)
36.79
10.00
6.88
6.28
4.15
2.12
0.01
0.60
2.98
2.71
0.27
0.14
24.96
24.78
23.87
0.17
0.74
4.35
50.19
32.45
17.74
(21.53)
25.03
9.41
8.78
10.21
8.44
1.76
0.00
(1.43)
0.67
0.38
0.29
(0.03)
14.56
14.43
13.64
0.36
0.43
0.18
1.67
1.39
0.28
0.16
16%
15%
18%
26%
30%
22%
6%
4%
10%
21%
2%
18%
18%
21%
2%
6%
0.13
1.19
1.02
0.17
(0.14)
12%
14%
22%
35%
43%
18%
2%
-14%
3%
4%
2%
13%
13%
15%
5%
4%
4%
3%
4%
2%
-1%
3%
2%
3%
1%
1%
2015
200.65
75.02
47.59
34.29
22.71
11.46
0.13
13.30
27.49
12.55
14.94
(0.06)
103.56
100.52
87.01
5.80
7.71
0.01
0.01
3.04
46.90
29.22
17.68
(24.83)
26.41
14.89
12.79
12.36
10.60
1.76
(0.00)
0.43
2.29
1.36
0.93
(0.19)
10.13
9.98
9.65
0.13
0.19
0.01
0.01
0.15
1.25
0.99
0.26
0.14
13%
20%
27%
36%
47%
15%
-1%
3%
8%
11%
6%
10%
10%
11%
2%
3%
68%
5%
3%
3%
1%
-1%
2016E
203.80
76.45
48.21
34.48
20.66
13.80
0.02
13.72
27.84
15.57
12.27
0.40
98.17
94.98
81.97
5.88
7.04
0.09
0.09
3.19
50.14
31.54
18.60
(25.19)
24.26
12.43
11.31
10.78
7.84
2.94
0.00
0.53
1.12
1.92
(0.80)
0.00
9.23
9.17
8.92
0.07
0.11
0.06
0.06
0.06
2.47
2.04
0.42
0.13
12%
16%
23%
31%
38%
21%
2%
4%
4%
12%
-7%
9%
10%
11%
1%
2%
69%
2%
5%
6%
2%
-1%
2017E
199.53
79.06
50.16
36.32
21.08
15.22
0.02
13.84
28.50
16.61
11.90
0.40
96.92
93.62
80.89
5.91
6.59
0.23
0.23
3.30
51.98
32.65
19.32
(24.00)
22.59
14.37
11.99
11.08
7.84
3.24
0.00
0.91
2.38
2.26
0.12
0.00
6.01
5.94
5.62
0.07
0.09
0.16
0.16
0.07
2.23
1.80
0.43
(0.02)
11%
18%
24%
31%
37%
21%
2%
7%
8%
14%
1%
6%
6%
7%
1%
1%
68%
2%
4%
6%
2%
0%
2018E
211.75
83.62
52.80
38.84
21.96
16.86
0.02
13.97
30.41
19.25
11.16
0.40
98.02
94.60
82.06
5.71
6.44
0.39
0.39
3.42
54.11
34.27
19.83
(24.00)
22.61
16.44
13.23
12.10
8.16
3.93
0.00
1.13
3.21
2.91
0.30
0.00
4.36
4.28
3.86
0.07
0.09
0.27
0.27
0.08
2.02
1.61
0.41
(0.22)
11%
20%
25%
31%
37%
23%
2%
8%
11%
15%
3%
4%
5%
5%
1%
1%
68%
2%
4%
5%
2%
1%
2019E
219.05
90.51
56.53
41.17
22.77
18.38
0.02
15.36
33.98
23.38
10.60
0.40
99.82
96.30
82.80
5.54
5.99
1.97
1.83
0.14
3.52
55.87
35.65
20.23
(27.15)
24.90
18.76
14.65
13.11
8.46
4.65
0.00
1.54
4.11
4.22
(0.11)
0.00
5.06
4.98
3.68
0.03
0.03
1.25
1.21
0.04
0.07
1.12
0.71
0.40
(0.03)
11%
21%
26%
32%
37%
25%
1%
10%
12%
18%
-1%
5%
5%
4%
1%
1%
63%
2%
2%
2%
2%
0%
2020E
226.66
98.43
59.88
43.29
23.42
19.85
0.02
16.59
38.55
28.48
10.07
0.40
100.72
97.13
83.24
5.37
5.57
2.94
2.27
0.67
3.59
57.05
36.72
20.33
(29.53)
26.82
20.19
15.75
13.92
8.53
5.39
0.00
1.83
4.44
4.64
(0.20)
0.00
5.72
5.69
3.95
0.01
0.01
1.72
1.48
0.23
0.04
0.94
0.73
0.20
(0.03)
12%
21%
26%
32%
36%
27%
1%
11%
12%
16%
-2%
6%
6%
5%
0%
0%
58%
1%
2%
2%
1%
0%
2021E
234.73
106.93
62.56
44.81
23.89
20.90
0.02
17.75
44.37
34.81
9.57
0.40
102.00
98.33
83.75
5.21
5.23
4.14
2.64
1.50
3.67
57.88
37.45
20.43
(32.08)
28.31
20.70
15.98
14.03
8.17
5.86
0.00
1.95
4.72
5.00
(0.29)
0.00
6.69
6.65
4.32
0.01
0.01
2.31
1.71
0.60
0.04
0.95
0.75
0.20
(0.03)
12%
19%
26%
31%
34%
28%
1%
11%
11%
14%
-3%
7%
7%
5%
0%
0%
56%
1%
2%
2%
1%
0%
2022E
242.02
115.31
64.50
45.68
24.24
21.42
0.02
18.82
50.81
41.72
9.09
0.40
102.95
99.21
83.64
5.06
4.92
5.60
2.93
2.67
3.74
58.36
37.82
20.53
(34.59)
28.66
20.46
15.62
13.55
7.55
6.01
0.00
2.07
4.83
5.11
(0.27)
0.00
7.27
7.23
4.31
(0.05)
(0.05)
3.02
1.90
1.12
0.04
0.96
0.76
0.21
(0.03)
12%
18%
24%
30%
31%
28%
1%
11%
10%
12%
-3%
7%
7%
5%
-1%
-1%
54%
1%
2%
2%
1%
0%
2023E
251.16
124.45
66.50
46.74
24.68
22.05
0.02
19.76
57.94
49.31
8.63
0.40
105.25
101.47
83.60
4.90
4.67
8.30
3.17
5.13
3.78
58.80
38.20
20.60
(37.33)
29.85
20.90
15.45
13.08
6.90
6.18
0.00
2.37
5.45
5.71
(0.26)
0.00
8.50
8.48
4.32
(0.10)
(0.09)
4.35
2.05
2.31
0.02
0.48
0.38
0.10
(0.04)
12%
17%
23%
28%
28%
28%
1%
12%
9%
12%
-3%
8%
8%
5%
-2%
-2%
52%
1%
1%
1%
1%
0%
2024E
261.34
132.30
68.16
47.80
25.19
22.59
0.02
20.35
64.14
55.94
8.20
0.40
109.49
105.67
83.98
4.76
4.44
12.49
3.50
8.99
3.81
59.24
38.58
20.66
(39.69)
32.49
20.91
15.00
12.55
6.22
6.34
0.00
2.44
5.91
6.16
(0.25)
0.00
11.13
11.11
4.72
(0.10)
(0.09)
6.57
2.25
4.32
0.02
0.49
0.39
0.10
(0.04)
12%
16%
22%
26%
25%
28%
1%
12%
9%
11%
-3%
10%
11%
6%
-2%
-2%
53%
1%
1%
1%
1%
0%
2025E
271.69
138.51
69.61
48.85
25.78
23.05
0.02
20.76
68.91
61.11
7.79
0.40
115.04
111.19
84.37
4.61
4.22
17.99
3.80
14.18
3.85
59.69
38.97
20.72
(41.55)
35.72
21.12
14.66
12.17
5.71
6.46
0.00
2.49
6.45
6.69
(0.23)
0.00
14.15
14.13
4.74
(0.09)
(0.08)
9.57
2.45
7.12
0.02
0.49
0.39
0.10
(0.04)
13%
15%
21%
25%
22%
28%
1%
12%
9%
11%
-3%
12%
13%
6%
-2%
-2%
53%
1%
1%
1%
1%
0%
118
Exhibit 229: SECs theoretical valuation based on DCF under five stars scenario
DCF valaution
WACC calculation
1) Equity component
Samsung Electronics cost of equity
9.9%
2) Debt component
Cost of debt
Tax rate
After-tax cost of debt
3.5%
25%
2.6%
WACC
9.4%
1.0%
228,544
112,740
-65,421
50%
6,403
254,852
138.4
1,841,745
2016E
203,801
11.9%
24,258
6,650
22,631
-7,105
20,000
27,343
2017E
199,532
-2%
11.3%
22,590
-7%
6,456
24,497
463
23,000
17,168
-37.2%
2018E
211,745
6%
10.7%
22,608
0%
6,448
25,216
2,012
27,000
12,365
-28.0%
2019E
219,050
3%
11.4%
24,901
10%
7,047
25,957
1,144
27,810
14,858
20.2%
2020E
226,665
3%
11.8%
26,816
8%
7,572
26,768
1,193
28,644
16,175
8.9%
2021E
234,733
4%
12.1%
28,305
6%
8,000
27,621
1,264
29,504
17,159
6.1%
2022E
242,025
3%
11.8%
28,656
1%
8,144
28,502
995
30,389
17,631
2.7%
2023E
251,161
4%
11.9%
29,850
4%
8,496
29,413
1,425
31,300
18,041
2.3%
2024E
261,341
4%
12.4%
32,487
9%
9,203
30,355
1,429
32,239
19,971
10.7%
2025E
271,694
4%
13.1%
35,723
10%
10,069
31,329
512
33,207
23,264
16.5%
119
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E CAGR(1525E)
26,283 33,264 41,778 52,303 63,810 77,210 92,651 109,329 126,821 145,845 167,721
0.76 0.51 0.42 0.35 0.30 0.25 0.21 0.18 0.16 0.13 0.12
0.41 0.32 0.26 0.21 0.19 0.16 0.15 0.13 0.12 0.11 0.10
47%
38%
37%
38%
37%
35%
32%
28%
23%
19%
14%
20%
17%
13%
17,149 27,357 38,868 54,399 75,071 99,844 125,804 157,255 191,851 232,139 278,567
0.59 0.42 0.31 0.24 0.19 0.15 0.12 0.10 0.08 0.07 0.06
0.50 0.33 0.24 0.18 0.14 0.11 0.09 0.08 0.06 0.05 0.05
15%
21%
23%
24%
24%
24%
24%
23%
21%
20%
20%
32%
21%
21%
1,758 2,569 3,304 4,576 6,305 8,457 11,178 14,332 17,604 20,435 22,938
6,313 5,050 4,188 3,507 2,919 2,569 2,282 2,071 1,928 1,819 1,730
5,629 4,426 3,618 2,977 2,500 2,265 2,101 1,965 1,849 1,759 1,677
11%
12%
14%
15%
14%
12%
8%
5%
4%
3%
3%
29%
12%
11%
320 319 297 276 257 240 227 215 205 196 187
27%
26%
23%
22%
21%
20%
19%
18%
17%
16%
15%
11%
11%
10%
10%
10%
10%
9%
9%
9%
9%
9%
62%
64%
66%
68%
69%
70%
72%
73%
74%
75%
76%
233 217 204 187 177 168 160 152 145 139 133
206 194 193 182 174 169 163 158 152 147 142
11%
11%
5%
3%
1%
1%
2%
4%
5%
6%
7%
15%
14%
9%
7%
6%
4%
2%
0%
1%
2%
3%
8%
6%
1%
1%
3%
5%
6%
6%
7%
7%
7%
5%
6%
0%
2%
4%
6%
7%
8%
9%
10%
11%
5%
0.0
0.0
0.0
0.0
0.0
0.0
0.2
0.2
0.0
0.1
0.1
0.0
0.4
0.4
0.0
0.3
0.3
0.0
0.7
0.7
0.0
0.5
0.5
0.0
1.2
1.2
0.0
0.8
0.8
0.0
5%
4%
61%
60%
Ourbearcaseassumesslightlyhigher DRAMASPerosionthan
basecaseduetoincreaseincompetitionpotentiallyfromnew
entrants,leadingtolowerprofitability.
Underbearcasescenario,weexpecthigherpricedeclinesfor
OLEDonincreasingsupplyfromnewentrants,whichwilllead
tolowerprofitabilityforOLEDthanbasecase.
BearcaseassumeslowershipmentandASPforSEC's
smartphones,whichwilllikelyleadtooperatinglossesfornot
onlymid/lowendbutalsohighend.
As perourbearcaseassumption,SEC'willlikelygenerateunit
revenueof$3.5withunitEBITof$2.3by2025EfromSamsung
Pay,lowerthanourbasecase.
120
Exhibit 231: SECs smartphone earnings estimates by 2025E under one star scenario
Sales(KRWbn)
Highend
Midrange
Lowend
OP(KRWbn)
Highend
Midrange
Lowend
OPM(%)
Highend
Midrange
Lowend
Shipment(mn)
Highend
Midrange
Lowend
Productmix(%)
Highend
Midrange
Lowend
ASP(US$)
Highend
Midrange
Lowend
Sequentialchange(%)
Shipment
Highend
Midrange
Lowend
ASP
Highend
Midrange
Lowend
2010
10,293
7,369
1,143
1,781
1,354
1,174
100
80
13%
16%
9%
4%
25
15
4
6
2011
31,304
16,312
9,492
5,500
6,380
4,573
1,318
489
20%
28%
14%
9%
96
32
33
30
2012
73,738
45,918
13,465
14,356
18,324
13,419
2,664
2,241
25%
29%
20%
16%
213
81
52
80
2013
105,668
72,573
12,804
20,290
23,605
19,184
1,655
2,767
22%
26%
13%
14%
320
133
45
142
2014
86,263
54,772
10,266
21,226
13,523
10,898
1,197
1,428
16%
20%
12%
7%
316
105
41
171
2015
84,336
50,424
10,109
23,804
9,600
7,535
788
1,276
11%
15%
8%
5%
320
86
36
198
2016E
83,173
48,284
9,953
24,937
8,917
6,880
630
1,406
11%
14%
6%
6%
319
81
34
203
2017E
71,205
39,391
8,597
23,216
3,567
3,502
125
(60)
5%
9%
1%
0%
297
69
31
197
2018E
61,879
33,278
7,428
21,173
1,785
2,327
(45)
(497)
3%
7%
1%
2%
276
61
28
187
2019E
54,457
28,729
6,418
19,310
695
1,733
(173)
(865)
1%
6%
3%
4%
257
54
25
178
2020E
48,323
24,801
5,727
17,794
(249)
1,016
(276)
(989)
1%
4%
5%
6%
240
48
23
169
2021E
43,385
21,652
5,164
16,570
(946)
459
(304)
(1,101)
2%
2%
6%
7%
227
43
21
162
2022E
39,137
18,902
4,805
15,430
(1,459)
19
(283)
(1,195)
4%
0%
6%
8%
215
39
20
156
2023E
35,661
16,671
4,472
14,518
(1,750)
(153)
(311)
(1,286)
5%
1%
7%
9%
205
35
19
151
2024E
32,613
14,704
4,248
13,660
(1,945)
(287)
(295)
(1,363)
6%
2%
7%
10%
196
32
18
146
2025E
29,858
12,969
4,036
12,853
(2,096)
(388)
(281)
(1,428)
7%
3%
7%
11%
187
28
17
142
60%
15%
26%
363
437
277
242
34%
35%
32%
296
457
260
164
38%
24%
37%
307
501
229
160
42%
14%
44%
302
498
260
131
33%
13%
54%
259
498
240
118
27%
11%
62%
233
521
247
106
26%
11%
64%
217
495
242
102
23%
10%
66%
204
475
233
98
22%
10%
68%
187
456
223
94
21%
10%
69%
177
442
214
91
20%
10%
70%
168
429
208
88
19%
9%
72%
160
416
204
85
18%
9%
73%
152
404
202
83
17%
9%
74%
145
395
200
80
16%
9%
75%
139
388
200
78
15%
9%
76%
133
380
200
75
290%
121%
824%
378%
19%
5%
6%
33%
123%
152%
59%
163%
4%
10%
12%
2%
50%
64%
14%
77%
2%
1%
14%
18%
1%
21%
10%
21%
14%
0%
8%
10%
1%
18%
11%
16%
10%
5%
3%
10%
0%
5%
5%
2%
7%
5%
2%
4%
7%
15%
10%
3%
6%
4%
4%
4%
7%
12%
10%
5%
8%
4%
4%
4%
7%
11%
10%
5%
6%
3%
4%
4%
7%
11%
8%
5%
5%
3%
3%
3%
6%
10%
8%
4%
5%
3%
2%
3%
5%
10%
6%
4%
5%
3%
1%
3%
5%
10%
6%
3%
5%
2%
1%
3%
4%
10%
5%
3%
4%
2%
0%
3%
4%
10%
5%
3%
4%
2%
0%
3%
2012
2013
2014
67.44
62.56
50.72
8.96
2.89
105.84
101.64
87.79
7.58
6.28
138.82
134.57
112.26
8.89
13.42
111.76
107.41
89.78
7.02
10.61
4.88
47.02
34.80
12.22
4.20
48.31
34.11
14.20
4.25
50.31
33.36
16.95
4.35
50.19
32.45
17.74
8.15
8.00
7.87
0.16
(0.03)
19.41
19.31
18.92
0.21
0.19
24.96
24.78
23.87
0.17
0.74
14.56
14.43
13.64
0.36
0.43
0.15
1.39
1.31
0.08
0.10
2.33
1.98
0.35
0.18
1.67
1.39
0.28
0.13
1.19
1.02
0.17
12%
13%
16%
2%
-1%
18%
19%
22%
3%
3%
18%
18%
21%
2%
6%
13%
13%
15%
5%
4%
3%
3%
4%
1%
2%
5%
6%
2%
4%
3%
4%
2%
3%
2%
3%
1%
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
103.56
100.51
86.99
5.80
7.71
0.01
0.01
3.05
46.90
29.22
17.68
2015
99.37
96.18
83.17
5.88
7.04
0.09
0.09
3.19
50.14
31.54
18.60
87.23
83.93
71.21
5.91
6.59
0.23
0.23
3.30
51.98
32.65
19.32
77.84
74.42
61.88
5.71
6.44
0.39
0.39
3.42
54.11
34.27
19.83
69.87
66.35
54.46
5.54
5.99
0.36
0.36
3.52
54.99
34.96
20.03
63.30
59.71
48.32
5.37
5.57
0.44
0.44
3.59
55.44
35.31
20.13
58.02
54.35
43.39
5.21
5.23
0.52
0.52
3.67
55.89
35.66
20.23
53.46
49.72
39.14
5.06
4.92
0.60
0.60
3.74
56.35
36.02
20.33
49.73
45.95
35.66
4.90
4.67
0.71
0.71
3.78
56.77
36.38
20.39
46.38
42.56
32.61
4.76
4.44
0.75
0.75
3.81
57.20
36.74
20.45
43.33
39.48
29.86
4.61
4.22
0.79
0.79
3.85
57.63
37.11
20.52
10.13
9.97
9.64
0.13
0.19
0.01
0.01
0.16
1.25
0.99
0.26
9.17
9.10
8.87
0.07
0.11
0.05
0.05
0.06
2.47
2.04
0.42
3.80
3.72
3.47
0.07
0.09
0.10
0.10
0.07
2.23
1.80
0.43
2.02
1.94
1.62
0.07
0.09
0.16
0.16
0.08
2.02
1.61
0.41
1.07
1.00
0.70
0.03
0.03
0.25
0.25
0.07
0.55
0.35
0.20
0.11
0.07
(0.25)
0.01
0.01
0.30
0.30
0.04
0.55
0.35
0.20
(0.53)
(0.57)
(0.95)
0.01
0.01
0.36
0.36
0.04
0.28
0.18
0.10
(1.11)
(1.15)
(1.46)
(0.05)
(0.05)
0.41
0.41
0.04
0.28
0.18
0.10
(1.44)
(1.46)
(1.75)
(0.10)
(0.09)
0.48
0.48
0.02
0.28
0.18
0.10
(1.61)
(1.63)
(1.94)
(0.10)
(0.09)
0.50
0.50
0.02
0.22
0.18
0.04
(1.73)
(1.75)
(2.10)
(0.09)
(0.08)
0.52
0.52
0.02
0.23
0.19
0.04
9%
9%
11%
1%
2%
56%
2%
5%
6%
2%
4%
4%
5%
1%
1%
42%
2%
4%
6%
2%
3%
3%
3%
1%
1%
41%
2%
4%
5%
2%
2%
2%
1%
1%
1%
68%
2%
1%
1%
1%
0%
0%
-1%
0%
0%
68%
1%
1%
1%
1%
-1%
-1%
-2%
0%
0%
68%
1%
1%
1%
1%
-2%
-2%
-4%
-1%
-1%
68%
1%
1%
1%
1%
-3%
-3%
-5%
-2%
-2%
67%
1%
1%
1%
1%
-3%
-4%
-6%
-2%
-2%
67%
1%
0%
1%
0%
-4%
-4%
-7%
-2%
-2%
66%
1%
0%
1%
0%
10%
10%
11%
2%
3%
68%
5%
3%
3%
1%
121
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
36.99
22.71
13.38
8.82
0.51
10.94
34.89
20.86
12.23
8.26
0.38
13.46
2012
37.44
23.71
14.00
9.54
0.17
13.73
2013
39.72
29.32
19.70
9.58
0.05
10.40
2014
47.59
34.29
22.71
11.46
0.13
13.30
2015
48.00
34.28
20.45
13.81
0.02
13.72
49.31
35.47
20.83
14.62
0.02
13.84
51.37
37.40
21.86
15.53
0.02
13.97
54.28
39.61
22.66
16.93
0.02
14.67
56.59
41.34
23.31
18.01
0.02
15.25
57.89
42.18
23.78
18.38
0.02
15.71
58.50
42.48
23.85
18.61
0.02
16.02
58.61
42.43
23.79
18.62
0.02
16.18
58.59
42.25
23.53
18.70
0.02
16.35
59.14
42.63
23.54
19.07
0.02
16.51
6.33
4.84
2.97
1.83
0.03
1.49
4.17
2.84
1.81
1.01
0.01
1.38
6.88
6.28
4.15
2.12
0.01
0.60
8.78
10.21
8.44
1.76
0.00
(1.43)
12.79
12.36
10.60
1.76
(0.00)
0.43
11.16
10.64
7.73
2.90
0.00
0.53
11.95
11.04
7.70
3.35
0.00
0.91
13.17
12.04
8.37
3.67
0.00
1.13
13.67
12.35
8.35
4.00
0.00
1.32
13.54
12.32
8.07
4.26
0.00
1.22
12.94
11.84
7.50
4.34
0.00
1.10
11.74
10.78
6.56
4.22
0.00
0.96
10.22
9.41
5.54
3.87
0.00
0.81
8.80
8.14
4.43
3.71
0.00
0.65
7.62
7.12
3.34
3.78
0.00
0.50
17%
21%
22%
21%
7%
14%
12%
14%
15%
12%
4%
10%
18%
26%
30%
22%
6%
4%
22%
35%
43%
18%
2%
-14%
27%
36%
47%
15%
-1%
3%
15%
19%
19%
20%
1%
4%
13%
17%
14%
20%
1%
3%
23%
31%
38%
21%
2%
4%
24%
31%
37%
23%
2%
7%
26%
32%
38%
24%
2%
8%
25%
31%
37%
24%
1%
9%
24%
30%
35%
24%
1%
8%
22%
28%
32%
24%
1%
7%
20%
25%
28%
23%
1%
6%
17%
22%
23%
21%
1%
5%
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
29.23
4.35
24.88
33.02
9.49
23.53
29.84
12.66
17.18
25.73
9.44
16.29
27.49
12.55
14.94
27.84
15.57
12.27
28.50
16.61
11.90
30.41
19.25
11.16
32.69
22.09
10.60
36.15
26.08
10.07
40.18
30.61
9.57
44.70
35.61
9.09
49.37
40.74
8.63
52.71
44.60
8.12
55.16
47.62
7.55
(0.39)
0.63
(1.02)
3.22
2.18
1.04
2.98
2.71
0.27
0.67
0.38
0.29
2.29
1.36
0.93
1.12
1.92
(0.80)
2.38
2.26
0.12
3.21
2.91
0.30
3.07
3.17
(0.11)
2.89
3.09
(0.20)
2.14
2.43
(0.29)
1.37
1.82
(0.45)
1.07
1.67
(0.60)
0.81
1.46
(0.65)
0.86
1.47
(0.60)
10%
23%
4%
10%
21%
2%
8%
14%
1%
11%
15%
3%
9%
14%
-1%
8%
12%
-2%
5%
8%
-3%
3%
5%
-5%
2%
4%
-7%
2%
3%
-8%
2%
3%
-8%
-1%
15%
-4%
2012
2013
2014
3%
4%
2%
2015
8%
11%
6%
4%
12%
-7%
122
SECs EBIT to decline sharply to W7tn by 2025E under one star scenario
Under our one star scenario which assumes lower smartphone shipment coupled with
more intense competition in semiconductors and OLED, we assume SECs sales would
reach W181tn in 2025E, 8% lower than our three stars assumption. Given our expectations
of much lower smartphone and component profitability under the one star scenario, we
expect SECs annual EBIT would potentially decline to W7tn in 2025E, 59% lower than our
three stars scenario.
2013
228.69
67.76
37.44
23.71
14.00
9.54
0.17
13.73
29.84
12.66
17.18
0.48
138.82
134.57
112.26
8.89
13.42
2014
206.21
65.79
39.72
29.32
19.70
9.58
0.05
10.40
25.73
9.44
16.29
0.34
111.76
107.41
89.78
7.02
10.61
4.25
50.31
33.36
16.95
(28.20)
36.79
10.00
6.88
6.28
4.15
2.12
0.01
0.60
2.98
2.71
0.27
0.14
24.96
24.78
23.87
0.17
0.74
4.35
50.19
32.45
17.74
(21.53)
25.03
9.41
8.78
10.21
8.44
1.76
0.00
(1.43)
0.67
0.38
0.29
(0.03)
14.56
14.43
13.64
0.36
0.43
0.18
1.67
1.39
0.28
0.16
16%
15%
18%
26%
30%
22%
6%
4%
10%
21%
2%
18%
18%
21%
2%
6%
0.13
1.19
1.02
0.17
(0.14)
12%
14%
22%
35%
43%
18%
2%
-14%
3%
4%
2%
13%
13%
15%
5%
4%
4%
3%
4%
2%
-1%
3%
2%
3%
1%
1%
2015
200.65
75.02
47.59
34.29
22.71
11.46
0.13
13.30
27.49
12.55
14.94
(0.06)
103.56
100.51
86.99
5.80
7.71
0.01
0.01
3.05
46.90
29.22
17.68
(24.83)
26.41
14.89
12.79
12.36
10.60
1.76
(0.00)
0.43
2.29
1.36
0.93
(0.19)
10.13
9.97
9.64
0.13
0.19
0.01
0.01
0.16
1.25
0.99
0.26
0.14
13%
20%
27%
36%
47%
15%
-1%
3%
8%
11%
6%
10%
10%
11%
2%
3%
68%
5%
3%
3%
1%
-1%
2016E
200.57
76.24
48.00
34.28
20.45
13.81
0.02
13.72
27.84
15.57
12.27
0.40
99.37
96.18
83.17
5.88
7.04
0.09
0.09
3.19
50.14
31.54
18.60
(25.19)
24.05
12.29
11.16
10.64
7.73
2.90
0.00
0.53
1.12
1.92
(0.80)
0.00
9.17
9.10
8.87
0.07
0.11
0.05
0.05
0.06
2.47
2.04
0.42
0.13
12%
16%
23%
31%
38%
21%
2%
4%
4%
12%
-7%
9%
9%
11%
1%
2%
56%
2%
5%
6%
2%
-1%
2017E
193.42
78.21
49.31
35.47
20.83
14.62
0.02
13.84
28.50
16.61
11.90
0.40
87.23
83.93
71.21
5.91
6.59
0.23
0.23
3.30
51.98
32.65
19.32
(24.00)
20.34
14.33
11.95
11.04
7.70
3.35
0.00
0.91
2.38
2.26
0.12
0.00
3.80
3.72
3.47
0.07
0.09
0.10
0.10
0.07
2.23
1.80
0.43
(0.02)
11%
18%
24%
31%
37%
23%
2%
7%
8%
14%
1%
4%
4%
5%
1%
1%
42%
2%
4%
6%
2%
0%
2018E
190.13
82.18
51.37
37.40
21.86
15.53
0.02
13.97
30.41
19.25
11.16
0.40
77.84
74.42
61.88
5.71
6.44
0.39
0.39
3.42
54.11
34.27
19.83
(24.00)
20.21
16.39
13.17
12.04
8.37
3.67
0.00
1.13
3.21
2.91
0.30
0.00
2.02
1.94
1.62
0.07
0.09
0.16
0.16
0.08
2.02
1.61
0.41
(0.22)
11%
20%
26%
32%
38%
24%
2%
8%
11%
15%
3%
3%
3%
3%
1%
1%
41%
2%
4%
5%
2%
1%
2019E
185.74
86.97
54.28
39.61
22.66
16.93
0.02
14.67
32.69
22.09
10.60
0.40
69.87
66.35
54.46
5.54
5.99
0.36
0.36
3.52
54.99
34.96
20.03
(26.09)
18.33
16.74
13.67
12.35
8.35
4.00
0.00
1.32
3.07
3.17
(0.11)
0.00
1.07
1.00
0.70
0.03
0.03
0.25
0.25
0.07
0.55
0.35
0.20
(0.03)
10%
19%
25%
31%
37%
24%
1%
9%
9%
14%
-1%
2%
2%
1%
1%
1%
68%
2%
1%
1%
1%
0%
2020E
183.66
92.74
56.59
41.34
23.31
18.01
0.02
15.25
36.15
26.08
10.07
0.40
63.30
59.71
48.32
5.37
5.57
0.44
0.44
3.59
55.44
35.31
20.13
(27.82)
17.07
16.44
13.54
12.32
8.07
4.26
0.00
1.22
2.89
3.09
(0.20)
0.00
0.11
0.07
(0.25)
0.01
0.01
0.30
0.30
0.04
0.55
0.35
0.20
(0.03)
9%
18%
24%
30%
35%
24%
1%
8%
8%
12%
-2%
0%
0%
-1%
0%
0%
68%
1%
1%
1%
1%
0%
2021E
182.56
98.07
57.89
42.18
23.78
18.38
0.02
15.71
40.18
30.61
9.57
0.40
58.02
54.35
43.39
5.21
5.23
0.52
0.52
3.67
55.89
35.66
20.23
(29.42)
14.80
15.08
12.94
11.84
7.50
4.34
0.00
1.10
2.14
2.43
(0.29)
0.00
(0.53)
(0.57)
(0.95)
0.01
0.01
0.36
0.36
0.04
0.28
0.18
0.10
(0.03)
8%
15%
22%
28%
32%
24%
1%
7%
5%
8%
-3%
-1%
-1%
-2%
0%
0%
68%
1%
1%
1%
1%
0%
2022E
182.05
103.20
58.50
42.48
23.85
18.61
0.02
16.02
44.70
35.61
9.09
0.40
53.46
49.72
39.14
5.06
4.92
0.60
0.60
3.74
56.35
36.02
20.33
(30.96)
12.25
13.11
11.74
10.78
6.56
4.22
0.00
0.96
1.37
1.82
(0.45)
0.00
(1.11)
(1.15)
(1.46)
(0.05)
(0.05)
0.41
0.41
0.04
0.28
0.18
0.10
(0.03)
7%
13%
20%
25%
28%
23%
1%
6%
3%
5%
-5%
-2%
-2%
-4%
-1%
-1%
68%
1%
1%
1%
1%
0%
2023E
182.09
107.98
58.61
42.43
23.79
18.62
0.02
16.18
49.37
40.74
8.63
0.40
49.73
45.95
35.66
4.90
4.67
0.71
0.71
3.78
56.77
36.38
20.39
(32.39)
10.10
11.29
10.22
9.41
5.54
3.87
0.00
0.81
1.07
1.67
(0.60)
0.00
(1.44)
(1.46)
(1.75)
(0.10)
(0.09)
0.48
0.48
0.02
0.28
0.18
0.10
(0.03)
6%
10%
17%
22%
23%
21%
1%
5%
2%
4%
-7%
-3%
-3%
-5%
-2%
-2%
67%
1%
1%
1%
1%
0%
2024E
181.49
111.31
58.59
42.25
23.53
18.70
0.02
16.35
52.71
44.60
8.12
0.40
46.38
42.56
32.61
4.76
4.44
0.75
0.75
3.81
57.20
36.74
20.45
(33.39)
8.19
9.61
8.80
8.14
4.43
3.71
0.00
0.65
0.81
1.46
(0.65)
0.00
(1.61)
(1.63)
(1.94)
(0.10)
(0.09)
0.50
0.50
0.02
0.22
0.18
0.04
(0.03)
5%
9%
15%
19%
19%
20%
1%
4%
2%
3%
-8%
-3%
-4%
-6%
-2%
-2%
67%
1%
0%
1%
0%
0%
2025E
180.97
114.31
59.14
42.63
23.54
19.07
0.02
16.51
55.16
47.62
7.55
0.40
43.33
39.48
29.86
4.61
4.22
0.79
0.79
3.85
57.63
37.11
20.52
(34.29)
6.94
8.48
7.62
7.12
3.34
3.78
0.00
0.50
0.86
1.47
(0.60)
0.00
(1.73)
(1.75)
(2.10)
(0.09)
(0.08)
0.52
0.52
0.02
0.23
0.19
0.04
(0.03)
4%
7%
13%
17%
14%
20%
1%
3%
2%
3%
-8%
-4%
-4%
-7%
-2%
-2%
66%
1%
0%
1%
0%
0%
123
Exhibit 236: SECs theoretical valuation based on DCF under one star scenario
DCF valaution
WACC calculation
1) Equity component
Samsung Electronics cost of equity
9.9%
2) Debt component
Cost of debt
Tax rate
After-tax cost of debt
3.5%
25%
2.6%
WACC
9.4%
1.0%
76,723
3,658
-65,421
50%
6,403
103,030
138.4
744,573
2016E
200,568
12.0%
24,049
6,650
22,631
-7,105
20,000
27,135
2017E
193,418
-4%
10.5%
20,337
-15%
6,456
24,497
463
23,000
14,915
-45.0%
2018E
190,127
-2%
10.6%
20,212
-1%
5,849
24,987
-671
26,500
13,520
-9.4%
2019E
185,737
-2%
9.9%
18,334
-9%
5,428
25,252
-704
27,030
11,832
-12.5%
2020E
183,657
-1%
9.3%
17,072
-7%
5,144
25,520
-333
27,571
10,212
-13.7%
2021E
182,560
-1%
8.1%
14,801
-13%
4,592
25,792
-176
28,122
8,054
-21.1%
2022E
182,049
0%
6.7%
12,251
-17%
3,951
26,066
29
28,684
5,653
-29.8%
2023E
182,089
0%
5.5%
10,099
-18%
3,389
26,344
6
29,258
3,789
-33.0%
2024E
181,488
0%
4.5%
8,194
-19%
2,874
26,624
14
29,843
2,087
-44.9%
2025E
180,970
0%
3.8%
6,941
-15%
2,509
26,908
145
30,440
755
-63.8%
124
Appendices
Appendices
125
1982
1983
1986
1987
1988
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2004
2005
2006
2008
2009
2010
2011
2012
2013
2014
2015
SamsungfoundedinDaegu,Korea
SamsungElectronicsIndustryCoLtdandSamsungSanyoElectronicswereestablished
SamsungSanyostartedtoproduceblackandwhiteTV
SamsungSanyobeganproductionofblackandwhitetelevisionsfordomesticsale
SamsungSanyobeganwashingmachineandrefrigeratorproduction
SamsungSanyoElectronicswasrenamedSamsungElectroMechanics
ApartofSamsungElectroMechanicswasmergedwithSEC
AcquiredKoreaSemiconductor
Beganmassproductionofmicrowaveovens
AcquiredKoreaElectronicsInformationCo.
Beganproducingairconditioners
OpenedtheR&DCenterinSuwon
MergedwithSamsungSemiconductorCo
KoreaTelecommunicationsCo.wasrenamedasSamsungSemiconductor&TelecommunicationsCo.
SemiconductorbusinesswasmovedtoKoreaElectronicsInformationCo.
BeganproductionofPCs
Thecompany'snamechangedto"SamsungElectronicsCo.Ltd"
Developedtheworldssmallest,lightest4mmvideotaperecorder
SamsungAdvancedInstituteofTechnologyopenedforR&Dpurposes
SamsungSemiconductor&TelecommunicationsCo.mergedwithSamsungElectronics.
Completeddevelopmentofmobilephonehandset
Completeddevelopmentofworldsfirst64MDRAM
SamsungGroupannounced"NewManagement"
Completeddevelopmentofworldsfirst256MDRAM
SamsungAdvancedInstituteofTechnologydevelopedworldsfirstrealtimeMPEG3technology
Beganmassproductionof64MDRAMs
BecameaWorldwideOlympicPartner(TOP)inthewirelesscommunicationscategory
Completeddevelopmentofworldsfirst30"TFTLCD
Announced2ndphaseof"NewManagement"
BeganmassproductionoftheworldsfirstdigitalTV
Developedworldsfirst128MBSynchronousDRAMand128MBFlashmemory
DevelopedwirelessInternetphone(Smartphone),asmall,multifunctionphone
Launchedtheworld's1stMP3mobilephone
SECandYahoo!formedStrategicAlliance
Developedworldsfirst512MbDRAM
Beganmassproductionof512MbFlashMemory
UnveiledIndustrysFirstUltraSlimHandset
DevelopedWorldsfirst40inchTFTLCD
Became#1inNANDflashmemoryand#2insemiconductorsworldwide
EstablishedSLCDwithSony,tomanufactureTFTLCDpanels
DevelopedcellularphonechipforsatelliteDMBsystem
Released46LCDTVforthefirsttimeintheworld
EstablishedaSystemLSIR&DcenterinChina
BecametheofficialsponsorofChelsea
DevelopedtheworldsfirstOLEDfor40"TV
AchievedNo.1worldwidemarketsharepositionforTVs
LaunchedOMNIAphone
Announceditsopenmobileplatform,bada
MergedwithSamsungDigitalImaging(DSCproducer)
LaunchedtheGalaxysmartphoneserieswiththeAndroidOS
SignedthepatentcrosslicenseagreementwithIBMoftheUS
Becamethelargestsmartphonemakerintheworld
SpunoffdisplaypanelbusinessasSamsungDisplay,combiningSDI'sOLEDbusiness
SECannouncedoperationofitsNANDfacilityinXian,China
Launchedtheworld'sfirstsmartphonewithbendededgescreensinGalaxyNoteEdge
Announcedaspecialshareholderreturninitiativeprogramincludingsharebuybackandcancellation
126
2014
206,205,987
128,278,800
77,927,187
52,902,116
25,025,071
1,240,421
250,088
1,859,630
27,875,034
4,480,676
311,859
23,082,499
2015
200,653,482
123,482,118
77,171,364
50,757,922
26,413,442
984,646
509,774
927,319
25,960,995
6,900,851
365,516
18,694,628
2016E
202,749,073
129,514,405
73,234,667
49,180,203
24,054,465
2,006,643
189,828
730,000
26,601,280
6,650,320
220,000
19,730,960
2017E
200,111,067
128,071,083
72,039,984
49,648,089
22,391,895
2,990,899
149,828
590,000
25,822,966
6,455,741
200,000
19,167,224
2018E
202,371,782
130,560,407
71,811,375
49,528,864
22,282,511
3,386,481
109,828
630,000
26,189,164
6,547,291
180,000
19,461,873
2019E
200,646,051
130,419,933
70,226,118
47,567,080
22,659,038
3,061,558
109,828
630,000
26,240,768
6,560,192
180,000
19,500,576
2020E
200,244,186
130,158,721
70,085,465
47,906,280
22,179,185
3,437,909
109,828
630,000
26,137,267
6,534,317
180,000
19,422,950
2021E
199,595,193
129,736,875
69,858,318
48,632,578
21,225,740
3,778,033
109,828
630,000
25,523,945
6,380,986
180,000
18,962,959
2022E
199,247,334
129,510,767
69,736,567
49,772,605
19,963,962
4,073,369
109,828
630,000
24,557,504
6,139,376
180,000
18,238,128
2023E
198,896,672
131,271,804
67,624,869
49,146,056
18,478,812
4,309,238
109,828
630,000
23,308,222
5,827,056
180,000
17,301,167
2024E
197,932,939
130,635,740
67,297,199
49,759,385
17,537,814
4,473,344
109,828
630,000
22,531,330
5,632,833
180,000
16,718,498
2025E
197,110,528
130,092,948
67,017,579
50,115,634
16,901,946
4,590,930
109,828
630,000
22,013,048
5,503,262
180,000
16,329,786
149.9
20.2
153,958
20,000
13%
145.8
24.3
128,228
21,000
16%
138.4
23.3
142,590
25,000
18%
138.0
23.3
138,943
28,000
20%
138.0
23.3
141,079
30,000
21%
138.0
23.3
141,360
31,000
22%
138.0
23.3
140,797
32,000
23%
138.0
23.3
137,462
33,000
24%
138.0
23.3
132,208
34,000
26%
138.0
23.3
125,416
35,000
28%
138.0
23.3
121,192
35,000
29%
138.0
23.3
118,375
35,000
30%
22,042,943
11%
16,910,026
8%
14,385,506
7%
43,078,492
21%
25,880,222
13%
19,662,541
10%
13,705,695
7%
47,344,299
23%
20,000,000
10%
21,224,147
10%
14,192,435
7%
46,685,671
23%
23,000,000
11%
22,973,699
11%
14,007,775
7%
46,888,640
23%
24,000,000
12%
24,867,471
12%
14,166,025
7%
48,798,575
24%
26,000,000
13%
25,000,000
12%
14,045,224
7%
49,309,038
24%
27,040,000
13%
25,500,000
12%
14,017,093
7%
49,345,685
24%
28,121,600
14%
26,010,000
13%
13,971,664
7%
48,918,905
24%
29,246,464
14%
26,530,200
13%
13,947,313
7%
48,194,159
23%
30,416,323
15%
27,060,804
13%
13,922,767
7%
47,256,613
23%
31,632,975
15%
27,602,020
13%
13,855,306
7%
46,874,001
23%
32,898,294
16%
28,430,081
14%
13,797,737
7%
47,083,535
23%
Exhibit 238: Consolidated balance sheet based on our three stars scenario
(Wmn)
Assets
Cashandequivalents
Netreceivables
Inventory/stocks
Othercurrentassets
Currentassets
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
58,530,542
24,694,610
17,317,504
14,603,370
115,146,026
66,865,544
25,168,026
18,811,794
13,969,361
124,814,725
78,002,336
23,005,866
16,644,244
15,722,639
133,375,084
86,396,533
23,352,594
16,895,094
17,695,969
144,340,190
94,497,969
24,096,677
17,705,819
19,916,969
156,217,434
104,147,215
23,891,192
17,686,769
20,514,478
166,239,654
112,843,097
23,843,341
17,651,345
21,129,912
175,467,695
120,360,376
23,766,065
17,594,137
21,763,809
183,484,387
126,312,705
23,724,645
17,563,473
22,416,724
190,017,547
130,376,546
23,682,891
17,802,295
23,089,225
194,950,957
133,216,178
23,568,138
17,716,035
23,781,902
198,282,254
134,795,581
23,850,374
17,642,425
24,495,359
200,783,740
GrossPP&E/Fixedassets
NetPP&E/Fixedassets
Grossintangibles
Netintangibles
Totalinvestments
Otherlongtermassets
183,286,006
80,872,950
10,439,152
4,785,473
17,899,970
11,718,539
205,287,524
86,477,110
12,318,306
5,396,311
13,608,828
11,882,547
225,287,524
85,252,963
12,818,479
4,489,425
16,878,828
12,365,026
248,287,524
85,279,263
13,338,960
3,486,861
20,188,828
13,376,684
272,287,524
84,411,792
13,880,576
2,379,883
23,538,828
14,471,111
298,287,524
85,411,792
14,296,993
2,796,300
26,888,828
14,615,822
325,327,524
86,951,792
14,725,903
3,225,210
30,238,828
14,761,980
353,449,124
89,063,392
15,167,680
3,666,987
33,588,828
14,909,600
382,695,588
91,779,656
15,622,710
4,122,018
36,938,828
15,058,696
413,111,911
95,135,175
16,091,392
4,590,699
40,288,828
15,209,283
444,744,886
99,166,130
16,574,133
5,073,441
43,638,828
15,361,376
477,643,181
103,634,344
17,071,357
5,570,665
46,988,828
15,514,990
Totalassets
230,422,958
242,179,521
252,361,326
266,671,826
281,019,048
295,952,396
310,645,506
324,713,194
337,916,745
350,174,941
361,522,029
372,492,566
Liabilities
Accountspayable
Shorttermdebt
Othercurrentliabilities
Currentliabilities
7,914,704
9,807,966
34,291,243
52,013,913
6,187,291
11,376,973
32,938,645
50,502,909
8,962,285
11,176,973
32,938,645
53,077,903
9,097,358
10,976,973
32,938,645
53,012,976
9,533,903
10,776,973
32,938,645
53,249,521
9,523,645
10,576,973
32,938,645
53,039,263
9,504,570
10,376,973
32,938,645
52,820,188
9,473,766
10,176,973
32,938,645
52,589,384
9,457,255
9,976,973
32,938,645
52,372,873
9,585,851
9,776,973
32,938,645
52,301,469
9,539,404
9,576,973
32,938,645
52,055,022
9,499,767
9,376,973
32,938,645
51,815,385
Longtermdebt
Otherlongtermliabilities
Totallongtermliabilities
1,379,871
8,940,986
10,320,857
1,424,046
11,192,761
12,616,807
1,404,046
12,115,404
13,519,450
1,384,046
12,115,404
13,499,450
1,364,046
12,115,404
13,479,450
1,344,046
12,357,713
13,701,759
1,324,046
12,604,867
13,928,913
1,304,046
12,856,964
14,161,010
1,284,046
13,114,103
14,398,149
1,264,046
13,376,385
14,640,431
1,244,046
13,643,913
14,887,959
1,224,046
13,916,791
15,140,837
Totalliabilities
62,334,770
63,119,716
66,597,354
66,512,427
66,728,971
66,741,021
66,749,101
66,750,394
66,771,022
66,941,900
66,942,981
66,956,223
Shareholders'Equity
Preferredshares
Commonstock
Treasurystock
Retainedearnings
Othercommonequity
Totalcommonequity
Minorityinterest(balancesheet)
Totalshareholdersfunds/equity
119,467
5,181,940
8,429,313
169,529,604
4,100,506
162,181,725
5,906,463
168,088,188
119,467
5,181,940
13,441,019
185,132,014
3,996,168
172,876,767
6,183,038
179,059,805
119,467
5,181,940
13,441,019
191,616,182
3,996,168
179,241,468
6,403,038
185,763,973
119,467
5,181,940
13,441,019
205,811,608
3,996,168
193,436,894
6,603,038
200,159,399
119,467
5,181,940
13,441,019
219,762,286
3,996,168
207,387,572
6,783,038
214,290,077
119,467
5,181,940
13,441,019
234,503,584
3,996,168
222,128,870
6,963,038
229,211,375
119,467
5,181,940
13,441,019
249,008,613
3,996,168
236,633,899
7,143,038
243,896,404
119,467
5,181,940
13,441,019
262,895,009
3,996,168
250,520,295
7,323,038
257,962,800
119,467
5,181,940
13,441,019
275,897,931
3,996,168
263,523,217
7,503,038
271,145,722
119,467
5,181,940
13,441,019
287,805,250
3,996,168
275,430,536
7,683,038
283,233,041
119,467
5,181,940
13,441,019
298,971,257
3,996,168
286,596,543
7,863,038
294,579,048
119,467
5,181,940
13,441,019
309,748,552
3,996,168
297,373,838
8,043,038
305,536,343
Totalliabilitiesandequity
230,422,958
242,179,521
252,361,326
266,671,826
281,019,048
295,952,396
310,645,506
324,713,194
337,916,745
350,174,941
361,522,029
372,492,566
127
Exhibit 239: Consolidated cash flow statement based on our three stars scenario
(Wmn)
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
Netprofit
Minorityinterest
Depreciationandamortization
Workingcapital
Otheroperatingcashflow
Cashflowfromoperating
23,082,499
311,859
18,053,421
1,588,851
6,061,241
36,975,389
18,694,628
365,516
20,930,857
3,695,119
3,765,879
40,061,761
19,730,960
220,000
22,631,206
7,104,704
1,583,113
48,103,756
19,167,224
200,000
24,496,745
462,506
3,294,987
40,106,476
19,461,873
180,000
26,516,065
1,118,263
3,665,427
41,374,247
19,500,576
180,000
26,650,000
214,277
849,912
45,694,941
19,422,950
180,000
27,166,500
64,200
864,438
45,969,212
18,962,959
180,000
27,693,165
103,680
879,420
46,060,384
18,238,128
180,000
28,230,197
55,572
894,871
45,809,026
17,301,167
180,000
28,777,801
68,471
910,807
45,279,689
16,718,498
180,000
29,336,187
154,565
927,242
45,462,007
16,329,786
180,000
30,181,589
248,262
944,193
45,498,920
Capex
(Acquisitions)/divestitures
Investments
Otherinvestmentcashflowitems
Cashflowfrominvesting
22,042,943
176,625
3,141,012
7,445,828
32,806,408
25,880,222
411,445
421,231
1,297,351
27,167,787
20,000,000
0
3,000,000
1,907,231
24,907,231
23,000,000
0
3,000,000
2,043,527
28,043,527
24,000,000
0
3,000,000
2,190,209
29,190,209
26,000,000
0
3,000,000
2,066,417
31,066,417
27,040,000
0
3,000,000
2,095,410
32,135,410
28,121,600
0
3,000,000
2,124,942
33,246,542
29,246,464
0
3,000,000
2,155,027
34,401,491
30,416,323
0
3,000,000
2,185,678
35,602,000
31,632,975
0
3,000,000
2,216,908
36,849,884
32,898,294
0
3,000,000
2,248,732
38,147,027
2,233,905
1,097,740
943,618
833,912
0
139
164,691
3,057,109
3,129,544
5,012,078
1,569,007
44,175
0
25,312
19,757
6,573,509
4,228,752
7,610,981
200,000
20,000
0
0
0
12,059,733
3,448,752
0
200,000
20,000
0
0
0
3,668,752
3,862,602
0
200,000
20,000
0
0
0
4,082,602
4,759,278
0
200,000
20,000
0
0
0
4,979,278
4,917,920
0
200,000
20,000
0
0
0
5,137,920
5,076,563
0
200,000
20,000
0
0
0
5,296,563
5,235,206
0
200,000
20,000
0
0
0
5,455,206
5,393,848
0
200,000
20,000
0
0
0
5,613,848
5,552,491
0
200,000
20,000
0
0
0
5,772,491
5,552,491
0
200,000
20,000
0
0
0
5,772,491
Dividendspaid
Sharerepurchase/issue
Increase/(decrease)inshorttermdebt
Increase/(decrease)inlongtermdebt
Increase/(decrease)inpreferredshares
Changeinminorityinterest
Otherfinancingcashflowitems
Cashflowfromfinancing
2014
206,205,987
128,278,800
77,927,187
52,902,116
25,025,071
1,240,421
250,088
1,859,630
27,875,034
4,480,676
311,859
23,082,499
2015
200,653,482
123,482,118
77,171,364
50,757,922
26,413,442
984,646
509,774
927,319
25,960,995
6,900,851
365,516
18,694,628
2016E
203,800,919
129,514,405
74,286,514
50,028,621
24,257,893
2,006,643
189,828
730,000
26,804,708
6,650,320
220,000
19,934,388
2017E
199,531,728
128,071,083
71,460,645
48,871,137
22,589,509
2,990,899
149,828
590,000
26,020,579
6,455,741
200,000
19,364,838
2018E
211,745,469
137,634,555
74,110,914
51,503,054
22,607,860
2,744,023
149,828
590,000
25,792,055
6,448,014
200,000
19,144,042
2019E
219,049,870
142,382,415
76,667,454
51,766,079
24,901,375
2,846,181
149,828
590,000
28,187,729
7,046,932
200,000
20,940,797
2020E
226,664,938
147,332,210
79,332,728
52,516,426
26,816,302
3,030,739
149,828
590,000
30,287,214
7,571,803
200,000
22,515,410
2021E
234,733,101
152,576,516
82,156,585
53,851,224
28,305,361
3,254,168
149,828
590,000
31,999,701
7,999,925
200,000
23,799,776
2022E
242,024,554
154,895,715
87,128,839
58,473,257
28,655,583
3,480,203
149,828
590,000
32,575,958
8,143,990
200,000
24,231,969
2023E
251,160,704
160,742,851
90,417,853
60,568,172
29,849,682
3,695,125
149,828
590,000
33,984,979
8,496,245
200,000
25,288,734
2024E
261,341,401
164,645,082
96,696,318
64,209,582
32,486,736
3,883,724
149,828
590,000
36,810,632
9,202,658
200,000
27,407,974
2025E
271,693,969
171,167,201
100,526,769
64,803,675
35,723,093
4,114,343
149,828
590,000
40,277,609
10,069,402
200,000
30,008,207
149.9
20.2
153,958
20,000
13%
145.8
24.3
128,228
21,000
16%
138.4
23.3
144,061
25,000
17%
138.0
23.3
140,376
28,000
20%
138.0
23.3
138,775
30,000
22%
138.0
23.3
151,800
32,000
21%
138.0
23.3
163,214
38,000
23%
138.0
23.3
172,525
43,000
25%
138.0
23.3
175,658
50,000
28%
138.0
23.3
183,318
55,000
30%
138.0
23.3
198,680
60,000
30%
138.0
23.3
217,529
65,000
30%
22,042,943
11%
16,910,026
8%
14,385,506
7%
43,078,492
21%
25,880,222
13%
19,662,541
10%
13,705,695
7%
47,344,299
23%
20,000,000
10%
21,224,147
10%
14,192,435
7%
46,889,099
23%
23,000,000
11%
22,973,699
11%
14,007,775
7%
47,086,254
23%
27,000,000
13%
23,662,910
11%
14,822,183
7%
47,824,277
23%
27,810,000
13%
24,372,798
12%
15,333,491
7%
50,858,750
25%
28,644,300
14%
25,103,982
12%
15,866,546
8%
53,584,089
26%
29,503,629
14%
25,857,101
13%
16,431,317
8%
55,926,096
27%
30,388,738
15%
26,632,814
13%
16,941,719
8%
57,157,849
28%
31,300,400
15%
27,431,799
13%
17,581,249
9%
59,263,099
29%
32,239,412
16%
28,254,753
14%
18,293,898
9%
62,842,004
30%
33,206,594
16%
29,102,395
14%
19,018,578
9%
67,052,036
33%
128
Exhibit 241: Consolidated balance sheet based on our five stars scenario
(Wmn)
Assets
Cashandequivalents
Netreceivables
Inventory/stocks
Othercurrentassets
Currentassets
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
58,530,542
24,694,610
17,317,504
14,603,370
115,146,026
66,865,544
25,168,026
18,811,794
13,969,361
124,814,725
78,002,336
23,005,866
16,644,244
15,722,639
133,375,084
86,396,533
23,352,594
16,895,094
17,695,969
144,340,190
88,830,167
24,782,054
18,156,704
18,580,767
150,349,692
93,432,213
25,636,939
18,783,041
19,509,805
157,361,998
99,057,181
26,528,184
19,436,016
20,485,296
165,506,676
104,750,744
27,472,457
20,127,843
21,509,560
173,860,605
110,151,837
28,325,827
20,433,791
22,585,038
181,496,493
114,860,233
29,395,095
21,205,143
23,714,290
189,174,761
120,674,426
30,586,613
21,719,924
24,900,005
197,880,967
128,987,967
30,701,419
22,580,320
26,145,005
208,414,710
GrossPP&E/Fixedassets
NetPP&E/Fixedassets
Grossintangibles
Netintangibles
Totalinvestments
Otherlongtermassets
183,286,006
80,872,950
10,439,152
4,785,473
17,899,970
11,718,539
205,287,524
86,477,110
12,318,306
5,396,311
13,608,828
11,882,547
225,287,524
85,252,963
12,818,479
4,489,425
16,878,828
12,365,026
248,287,524
85,279,263
13,338,960
3,486,861
20,188,828
13,376,684
275,287,524
88,616,353
14,005,908
4,153,809
25,498,828
13,777,984
303,097,524
92,053,555
14,706,204
4,854,105
30,808,828
14,191,324
331,741,824
95,593,873
15,441,514
5,589,415
36,118,828
14,617,063
361,245,453
99,240,401
16,213,590
6,361,490
41,428,828
15,055,575
391,634,191
102,996,325
17,024,269
7,172,170
46,738,828
15,507,243
422,934,591
106,864,926
17,875,483
8,023,383
52,048,828
15,972,460
455,174,003
110,849,586
18,769,257
8,917,158
57,358,828
16,451,634
488,380,597
114,953,785
19,707,720
9,855,620
62,668,828
16,945,183
Totalassets
230,422,958
242,179,521
252,361,326
266,671,826
282,396,666
299,269,809
317,425,855
335,946,900
353,911,058
372,084,358
391,458,172
412,838,126
Liabilities
Accountspayable
Shorttermdebt
Othercurrentliabilities
Currentliabilities
7,914,704
9,807,966
34,291,243
52,013,913
6,187,291
11,376,973
32,938,645
50,502,909
8,962,285
11,176,973
32,938,645
53,077,903
9,097,358
10,976,973
32,938,645
53,012,976
9,776,687
10,776,973
32,938,645
53,492,305
10,113,945
10,576,973
32,938,645
53,629,563
10,465,547
10,376,973
32,938,645
53,781,165
10,838,069
10,176,973
32,938,645
53,953,687
11,002,810
9,976,973
32,938,645
53,918,428
11,418,154
9,776,973
32,938,645
54,133,772
11,695,344
9,576,973
32,938,645
54,210,962
12,158,634
9,376,973
32,938,645
54,474,252
Longtermdebt
Otherlongtermliabilities
Totallongtermliabilities
1,379,871
8,940,986
10,320,857
1,424,046
11,192,761
12,616,807
1,404,046
12,115,404
13,519,450
1,384,046
12,115,404
13,499,450
1,364,046
12,478,867
13,842,913
1,344,046
12,853,233
14,197,279
1,324,046
13,238,830
14,562,876
1,304,046
13,635,994
14,940,040
1,284,046
14,045,074
15,329,120
1,264,046
14,466,427
15,730,473
1,244,046
14,900,419
16,144,465
1,224,046
15,347,432
16,571,478
Totalliabilities
62,334,770
63,119,716
66,597,354
66,512,427
67,335,218
67,826,841
68,344,041
68,893,728
69,247,549
69,864,244
70,355,427
71,045,730
Shareholders'Equity
Preferredshares
Commonstock
Treasurystock
Retainedearnings
Othercommonequity
Totalcommonequity
Minorityinterest(balancesheet)
Totalshareholdersfunds/equity
119,467
5,181,940
8,429,313
169,529,604
4,100,506
162,181,725
5,906,463
168,088,188
119,467
5,181,940
13,441,019
185,132,014
3,996,168
172,876,767
6,183,038
179,059,805
119,467
5,181,940
13,441,019
191,616,182
3,996,168
179,241,468
6,403,038
185,763,973
119,467
5,181,940
13,441,019
205,811,608
3,996,168
193,436,894
6,603,038
200,159,399
119,467
5,181,940
13,441,019
220,513,657
3,996,168
208,138,943
6,803,038
215,061,448
119,467
5,181,940
13,441,019
236,695,176
3,996,168
224,320,462
7,003,038
231,442,967
119,467
5,181,940
13,441,019
254,134,024
3,996,168
241,759,310
7,203,038
249,081,815
119,467
5,181,940
13,441,019
271,905,381
3,996,168
259,530,667
7,403,038
267,053,172
119,467
5,181,940
13,441,019
289,315,718
3,996,168
276,941,004
7,603,038
284,663,509
119,467
5,181,940
13,441,019
306,672,323
3,996,168
294,297,609
7,803,038
302,220,114
119,467
5,181,940
13,441,019
325,354,954
3,996,168
312,980,240
8,003,038
321,102,745
119,467
5,181,940
13,441,019
345,844,605
3,996,168
333,469,891
8,203,038
341,792,396
Totalliabilitiesandequity
230,422,958
242,179,521
252,361,326
266,671,826
282,396,666
299,269,809
317,425,855
335,946,900
353,911,058
372,084,358
391,458,172
412,838,126
Exhibit 242: Consolidated cash flow statement based on our five stars scenario
(Wmn)
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
Netprofit
Minorityinterest
Depreciationandamortization
Workingcapital
Otheroperatingcashflow
Cashflowfromoperating
23,082,499
311,859
18,053,421
1,588,851
6,061,241
36,975,389
18,694,628
365,516
20,930,857
3,695,119
3,765,879
40,061,761
19,934,388
220,000
22,631,206
7,104,704
1,583,113
48,307,184
19,364,838
200,000
24,496,745
462,506
3,294,987
40,304,090
19,144,042
200,000
25,216,417
2,011,741
1,232,637
41,316,081
20,940,797
200,000
25,957,374
1,143,963
1,278,012
44,676,196
22,515,410
200,000
26,767,787
1,192,618
1,325,633
46,964,946
23,799,776
200,000
27,620,735
1,263,578
1,375,612
48,981,321
24,231,969
200,000
28,502,266
994,577
1,428,065
50,511,593
25,288,734
200,000
29,413,417
1,425,276
1,483,117
51,993,758
27,407,974
200,000
30,355,269
1,429,109
1,540,896
54,993,237
30,008,207
200,000
31,328,942
511,911
1,601,537
59,423,701
Capex
(Acquisitions)/divestitures
Investments
Otherinvestmentcashflowitems
Cashflowfrominvesting
22,042,943
176,625
3,141,012
7,445,828
32,806,408
25,880,222
411,445
421,231
1,297,351
27,167,787
20,000,000
0
3,000,000
1,907,231
24,907,231
23,000,000
0
3,000,000
2,043,527
28,043,527
27,000,000
0
5,000,000
2,220,454
34,220,454
27,810,000
0
5,000,000
2,284,872
35,094,872
28,644,300
0
5,000,000
2,399,116
36,043,416
29,503,629
0
5,000,000
2,535,709
37,039,338
30,388,738
0
5,000,000
2,680,131
38,068,869
31,300,400
0
5,000,000
2,832,832
39,133,232
32,239,412
0
5,000,000
2,994,290
40,233,702
33,206,594
0
5,000,000
3,165,010
41,371,604
2,233,905
1,097,740
943,618
833,912
0
139
164,691
3,057,109
3,129,544
5,012,078
1,569,007
44,175
0
25,312
19,757
6,573,509
4,228,752
7,610,981
200,000
20,000
0
0
0
12,059,733
3,448,752
0
200,000
20,000
0
0
0
3,668,752
4,441,993
0
200,000
20,000
0
0
0
4,661,993
4,759,278
0
200,000
20,000
0
0
0
4,979,278
5,076,563
0
200,000
20,000
0
0
0
5,296,563
6,028,418
0
200,000
20,000
0
0
0
6,248,418
6,821,631
0
200,000
20,000
0
0
0
7,041,631
7,932,130
0
200,000
20,000
0
0
0
8,152,130
8,725,343
0
200,000
20,000
0
0
0
8,945,343
9,518,556
0
200,000
20,000
0
0
0
9,738,556
Dividendspaid
Sharerepurchase/issue
Increase/(decrease)inshorttermdebt
Increase/(decrease)inlongtermdebt
Increase/(decrease)inpreferredshares
Changeinminorityinterest
Otherfinancingcashflowitems
Cashflowfromfinancing
129
2014
206,205,987
128,278,800
77,927,187
52,902,116
25,025,071
1,240,421
250,088
1,859,630
27,875,034
4,480,676
311,859
23,082,499
2015
200,653,482
123,482,118
77,171,364
50,757,922
26,413,442
984,646
509,774
927,319
25,960,995
6,900,851
365,516
18,694,628
2016E
200,568,160
129,514,405
71,053,754
47,004,382
24,049,372
2,006,643
189,828
730,000
26,596,187
6,650,320
220,000
19,725,867
2017E
193,418,434
128,071,083
65,347,351
45,010,385
20,336,967
2,990,899
149,828
590,000
23,768,038
6,455,741
200,000
17,112,296
2018E
190,126,985
123,582,540
66,544,445
46,332,681
20,211,764
2,744,023
149,828
590,000
23,395,959
5,848,990
200,000
17,346,969
2019E
185,736,665
120,728,832
65,007,833
46,673,701
18,334,132
2,938,227
149,828
590,000
21,712,530
5,428,133
200,000
16,084,398
2020E
183,656,940
119,377,011
64,279,929
47,207,636
17,072,293
3,062,296
149,828
590,000
20,574,761
5,143,690
200,000
15,231,071
2021E
182,559,998
118,663,999
63,895,999
49,094,914
14,801,085
3,128,191
149,828
590,000
18,369,448
4,592,362
200,000
13,577,086
2022E
182,049,458
120,152,642
61,896,816
49,645,743
12,251,073
3,113,251
149,828
590,000
15,804,496
3,951,124
200,000
11,653,372
2023E
182,089,145
120,178,836
61,910,309
51,811,485
10,098,824
3,017,159
149,828
590,000
13,556,155
3,389,039
200,000
9,967,116
2024E
181,488,220
121,597,108
59,891,113
51,697,062
8,194,051
2,863,271
149,828
590,000
11,497,494
2,874,373
200,000
8,423,120
2025E
180,969,702
121,249,700
59,720,002
52,778,863
6,941,139
2,655,509
149,828
590,000
10,036,820
2,509,205
200,000
7,327,615
149.9
20.2
153,958
20,000
13%
145.8
24.3
128,228
21,000
16%
138.4
23.3
142,554
25,000
18%
138.0
23.3
124,047
28,000
23%
138.0
23.3
125,748
30,000
24%
138.0
23.3
116,596
30,000
26%
138.0
23.3
110,410
30,000
27%
138.0
23.3
98,420
28,000
28%
138.0
23.3
84,475
25,000
30%
138.0
23.3
72,252
22,000
30%
138.0
23.3
61,059
18,500
30%
138.0
23.3
53,118
16,000
30%
22,042,943
11%
16,910,026
8%
14,385,506
7%
43,078,492
21%
25,880,222
13%
19,662,541
10%
13,705,695
7%
47,344,299
23%
20,000,000
10%
21,224,147
10%
14,192,435
7%
46,680,578
23%
23,000,000
11%
22,973,699
11%
14,007,775
7%
44,833,712
22%
26,500,000
13%
23,433,173
11%
13,308,889
6%
45,198,444
22%
27,030,000
13%
23,667,505
11%
13,001,567
6%
43,586,213
21%
27,570,600
13%
23,904,180
12%
12,855,986
6%
42,592,741
21%
28,122,012
14%
24,143,222
12%
12,779,200
6%
40,592,901
20%
28,684,452
14%
24,384,654
12%
12,743,462
6%
38,317,292
19%
29,258,141
14%
24,628,501
12%
12,746,240
6%
36,442,522
18%
29,843,304
14%
24,874,786
12%
12,704,175
6%
34,818,337
17%
30,440,170
15%
25,123,534
12%
12,667,879
6%
33,849,163
16%
Exhibit 244: Consolidated balance sheet based on our one star scenario
(Wmn)
Assets
Cashandequivalents
Netreceivables
Inventory/stocks
Othercurrentassets
Currentassets
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
58,530,542
24,694,610
17,317,504
14,603,370
115,146,026
66,865,544
25,168,026
18,811,794
13,969,361
124,814,725
78,002,336
23,005,866
16,644,244
15,722,639
133,375,084
86,396,533
23,352,594
16,895,094
17,695,969
144,340,190
91,252,408
22,955,197
16,302,967
17,872,928
148,383,501
94,262,662
22,425,127
15,926,507
18,051,658
150,665,954
95,741,987
22,174,029
15,748,175
18,232,174
151,896,365
95,094,110
22,041,589
15,654,115
18,414,496
151,204,309
92,310,619
21,979,948
15,850,496
18,598,641
148,739,704
88,006,207
21,984,740
15,853,952
18,784,627
144,629,526
82,284,042
21,912,186
16,041,050
18,972,473
139,209,751
75,538,908
22,078,304
15,995,220
19,162,198
132,774,630
GrossPP&E/Fixedassets
NetPP&E/Fixedassets
Grossintangibles
Netintangibles
Totalinvestments
Otherlongtermassets
183,286,006
80,872,950
10,439,152
4,785,473
17,899,970
11,718,539
205,287,524
86,477,110
12,318,306
5,396,311
13,608,828
11,882,547
225,287,524
85,252,963
12,818,479
4,489,425
16,878,828
12,365,026
248,287,524
85,279,263
13,338,960
3,486,861
20,188,828
13,376,684
274,787,524
88,346,090
13,472,350
3,620,251
25,498,828
13,510,450
301,817,524
91,708,585
13,607,073
3,754,974
30,808,828
13,645,555
329,388,124
95,375,004
13,743,144
3,891,045
36,118,828
13,782,011
357,510,136
99,353,794
13,880,576
4,028,476
41,428,828
13,919,831
386,194,588
103,653,592
14,019,381
4,167,282
46,738,828
14,059,029
415,452,730
108,283,233
14,159,575
4,307,476
52,048,828
14,199,619
445,296,034
113,251,751
14,301,171
4,449,072
57,358,828
14,341,615
475,736,204
118,568,387
14,444,183
4,592,083
62,668,828
14,485,032
Totalassets
230,422,958
242,179,521
252,361,326
266,671,826
279,359,120
290,583,896
301,063,253
309,935,239
317,358,435
323,468,681
328,611,017
333,088,960
Liabilities
Accountspayable
Shorttermdebt
Othercurrentliabilities
Currentliabilities
7,914,704
9,807,966
34,291,243
52,013,913
6,187,291
11,376,973
32,938,645
50,502,909
8,962,285
11,176,973
32,938,645
53,077,903
9,097,358
10,976,973
32,938,645
53,012,976
8,778,521
10,776,973
32,938,645
52,494,139
8,575,811
10,576,973
32,938,645
52,091,429
8,479,787
10,376,973
32,938,645
51,795,405
8,429,139
10,176,973
32,938,645
51,544,757
8,534,883
9,976,973
32,938,645
51,450,501
8,536,743
9,776,973
32,938,645
51,252,361
8,637,488
9,576,973
32,938,645
51,153,106
8,612,811
9,376,973
32,938,645
50,928,429
Longtermdebt
Otherlongtermliabilities
Totallongtermliabilities
1,379,871
8,940,986
10,320,857
1,424,046
11,192,761
12,616,807
1,404,046
12,115,404
13,519,450
1,384,046
12,115,404
13,499,450
1,364,046
12,236,559
13,600,605
1,344,046
12,358,924
13,702,970
1,324,046
12,482,513
13,806,559
1,304,046
12,607,338
13,911,384
1,284,046
12,733,412
14,017,458
1,264,046
12,860,746
14,124,792
1,244,046
12,989,353
14,233,399
1,224,046
13,119,247
14,343,293
Totalliabilities
62,334,770
63,119,716
66,597,354
66,512,427
66,094,743
65,794,400
65,601,964
65,456,141
65,467,958
65,377,153
65,386,506
65,271,722
Shareholders'Equity
Preferredshares
Commonstock
Treasurystock
Retainedearnings
Othercommonequity
Totalcommonequity
Minorityinterest(balancesheet)
Totalshareholdersfunds/equity
119,467
5,181,940
8,429,313
169,529,604
4,100,506
162,181,725
5,906,463
168,088,188
119,467
5,181,940
13,441,019
185,132,014
3,996,168
172,876,767
6,183,038
179,059,805
119,467
5,181,940
13,441,019
191,616,182
3,996,168
179,241,468
6,403,038
185,763,973
119,467
5,181,940
13,441,019
205,811,608
3,996,168
193,436,894
6,603,038
200,159,399
119,467
5,181,940
13,441,019
218,716,585
3,996,168
206,341,871
6,803,038
213,264,376
119,467
5,181,940
13,441,019
230,041,705
3,996,168
217,666,991
7,003,038
224,789,496
119,467
5,181,940
13,441,019
240,513,498
3,996,168
228,138,784
7,203,038
235,461,289
119,467
5,181,940
13,441,019
249,331,306
3,996,168
236,956,592
7,403,038
244,479,097
119,467
5,181,940
13,441,019
256,542,686
3,996,168
244,167,972
7,603,038
251,890,477
119,467
5,181,940
13,441,019
262,543,737
3,996,168
250,169,023
7,803,038
258,091,528
119,467
5,181,940
13,441,019
267,476,721
3,996,168
255,102,007
8,003,038
263,224,512
119,467
5,181,940
13,441,019
271,869,448
3,996,168
259,494,734
8,203,038
267,817,239
Totalliabilitiesandequity
230,422,958
242,179,521
252,361,326
266,671,826
279,359,120
290,583,896
301,063,253
309,935,239
317,358,435
323,468,681
328,611,017
333,088,960
130
Exhibit 245: Consolidated cash flow statement based on our one star scenario
(Wmn)
Netprofit
Minorityinterest
Depreciationandamortization
Workingcapital
Otheroperatingcashflow
Cashflowfromoperating
Capex
(Acquisitions)/divestitures
Investments
Otherinvestmentcashflowitems
Cashflowfrominvesting
Dividendspaid
Sharerepurchase/issue
Increase/(decrease)inshorttermdebt
Increase/(decrease)inlongtermdebt
Increase/(decrease)inpreferredshares
Changeinminorityinterest
Otherfinancingcashflowitems
Cashflowfromfinancing
2014
2015
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
23,082,499
311,859
18,053,421
1,588,851
6,061,241
36,975,389
18,694,628
365,516
20,930,857
3,695,119
3,765,879
40,061,761
19,725,867
220,000
22,631,206
7,104,704
1,583,113
48,098,663
17,112,296
200,000
24,496,745
462,506
3,294,987
38,051,548
17,346,969
200,000
24,986,680
670,686
499,572
42,704,763
16,084,398
200,000
25,252,082
703,821
501,468
41,738,832
15,231,071
200,000
25,520,448
333,405
503,383
40,781,541
13,577,086
200,000
25,791,815
175,853
505,317
39,239,438
11,653,372
200,000
26,066,220
28,997
507,270
37,383,325
9,967,116
200,000
26,343,697
6,386
509,243
35,995,185
8,423,120
200,000
26,624,286
13,800
511,235
34,722,372
7,327,615
200,000
26,908,024
144,965
513,247
33,777,427
22,042,943
176,625
3,141,012
7,445,828
32,806,408
25,880,222
411,445
421,231
1,297,351
27,167,787
20,000,000
0
3,000,000
1,907,231
24,907,231
23,000,000
0
3,000,000
2,043,527
28,043,527
26,500,000
0
5,000,000
1,686,896
33,186,896
27,030,000
0
5,000,000
1,719,300
33,749,300
27,570,600
0
5,000,000
1,752,339
34,322,939
28,122,012
0
5,000,000
1,786,025
34,908,037
28,684,452
0
5,000,000
1,820,371
35,504,823
29,258,141
0
5,000,000
1,855,390
36,113,532
29,843,304
0
5,000,000
1,891,096
36,734,400
30,440,170
0
5,000,000
1,927,502
37,367,672
2,233,905
1,097,740
943,618
833,912
0
139
164,691
3,057,109
3,129,544
5,012,078
1,569,007
44,175
0
25,312
19,757
6,573,509
4,228,752
7,610,981
200,000
20,000
0
0
0
12,059,733
3,448,752
0
200,000
20,000
0
0
0
3,668,752
4,441,993
0
200,000
20,000
0
0
0
4,661,993
4,759,278
0
200,000
20,000
0
0
0
4,979,278
4,759,278
0
200,000
20,000
0
0
0
4,979,278
4,759,278
0
200,000
20,000
0
0
0
4,979,278
4,441,993
0
200,000
20,000
0
0
0
4,661,993
3,966,065
0
200,000
20,000
0
0
0
4,186,065
3,490,137
0
200,000
20,000
0
0
0
3,710,137
2,934,888
0
200,000
20,000
0
0
0
3,154,888
131
Samsung
Electronics
SamsungC&T
4.3%
25.5%
SamsungSecurities
2.0%
0.5%
SamsungTechwin
SamsungLife
Samsung
Electronics
SamsungC&T
SamsungSecurities
SamsungSDI
SamsungSDI
0.1%
SamsungTechwin
50.0%
22.7%
SamsungFine
Chemicals
5.4%
38.4% SamsungGeneral
3.2%
Chemicals
50.0%
22.7%
SamsungThales
13.5%
9.3%
6.1%
SamsungFine
Chemicals
SEMCO
50.0%
KunheeLee's
Family
SamsungLife
15.4% SamsungGeneral
Chemicals
SamsungThales
3.1%
SEMCO
50.0%
KunheeLee's
Family
SamsungTotal
SamsungTotal
Samsung also announced in October 2015 to sell 31.5% stake in Samsung Fine
Chemicals (including 49% stake in Samsung BP Chemicals), as well as spin off
Samsung SDIs chemical business and sell 90% stake to Lotte Chemical. After the deal,
Samsungs chemical businesses such as Samsung General Chemicals, Samsung Total,
Samsung Fine Chemicals, Samsung BP Chemicals, and SDIs chemical business were
all sold.
Samsung
Electronics
SamsungC&T
5.6%
8.4%
SEMCO
0.3%
2.2%
SamsungFine
Chemicals
HotelShilla
Samsung
Electronics
SamsungSDI
HotelShilla
SamsungSDI
90.0%
19.8%
SDIChemical
SamsungBP
Chemicals
SEMCO
SamsungFine
Chemicals
14.7%
19.8% 29.2%
SamsungC&T
SamsungBP
Chemicals
SDIChemical
In August 2015, Samsung C&T was merged with Cheil Industries, which effectively
reduced the number of circular ownerships under Samsung Group holding structure
from 10 to 7. However, as three rings of cross holdings were actually enhanced from
the merger, SDI sold 2.6% stake in Samsung C&T in February 2016.
132
0.1
SamsungF&M
KunheeLee's
Family
0.1
SamsungF&M
20.8
19.3
15.0
42.2
1.3
7.2
SamsungLife
Insurance
19.3
15.0
4.7
Samsung
Electronics
20.8
3.7
1.4
4.1
1.4
SamsungC&T
4.8
22.6
17.1
4.7
23.7
CheilIndustries+
SamsungC&T
2.6
0.2
7.2
1.4
4.7
Samsung
Electronics
4.1
3.7
30.2
1.3
7.2
SamsungLife
Insurance
CheilIndustries
22.6
19.1
19.1
SamsungSDS
SamsungSDS
SEMCO
23.7
0.2
17.1
SEMCO
0.2
SamsungSDI
SamsungSDI
19.6
0.2
19.6
0.2
In January 2016, Samsung Life announced that it will buy 37.5% of Samsung Card
shares from Samsung Electronics, to become the major shareholder of Samsung
Card. Following multiple buybacks by the groups financial affiliates in the past
year, a further rise in Samsung Lifes stake in Samsung Card led to renewed
speculation (media sources including Maeil Business (February 1, 2016), Korea
Economic Daily (January 29, 2016)) reported this) on the potential emergence of a
holding company one of the potential options speculated being Samsungs
future shareholding structure would be to establish a financial holding company
under Samsung Life and another holding company with manufacturing companies
under Samsung Electronics.
KunheeLee's
family
31.1%
31.1%
SamsungC&T
SamsungC&T
19.3%
4.1%
SamsungLife
Insurance
98.7%
Samsung
Asset
11.1%
Samsung
Securities
7.2%
15.0%
SamsungF&M
34.4%
SamsungCard
19.3%
Samsung
Electronics
98.7%
37.5%
4.1%
SamsungLife
Insurance
Samsung
Asset
11.1%
Samsung
Securities
7.3%
15.0%
71.9%
SamsungF&M
SamsungCard
Samsung
Electronics
133
Exhibit 254: Samsung Electronics and Samsung Groups ownership structure (as of March 2016)
KunheeLee's
Family
SamsungAsset
Management
98.7
20.8
SamsungLife
(032830.KS)
7.3
4.1
SamsungElectronics
(005930.KS)
2.6
19.3
15.0
1.4
4.8
0.1
S1
(012750.KS)
19.6
SamsungSDI
(006400.KS)
17.0
22.6
SamsungSDS
(018260.KS)
0.2
11.0
1.0
SamsungC&T
(028260.KS)
2.1
1.3
SamsungF&M
(000810.KS)
31.1
6.1
0.1
Credu
(067280.KQ)
23.7
SEMCO
(009150.KS)
15.2
1.9
2.4
1.3
8.0
11.1
SamsungSecurities
(016360.KS)
3.4
17.1
47.2
15.2
SamsungHeavy
Industries
(010140.KS)
17.6
HotelShilla
(008770.KS)
5.1
84.8
SamsungDisplay
0.4
7.9
3.1
1.3
29.8
14.8
11.7
0.2
1.5
SERI
SamsungEngineering
(028050.KS)
71.9
68.5
SamsungCard
(029780.KS)
7.0
91.5
3.0
CheilWorldwide
(030000.KS)
12.6
46.8
29.6
23.8
1.0
SamsungMedison
Semes
51.0
SamsungBiologics
12.6
With the series of shareholding restructuring moves that the Samsung Group has
made over the past 3 years, we think there exists a possibility that the Samsung
Group may consider adopting a holding company structure as stakeholders
including government and investors are encouraging Korean companies to
eliminate complex circular ownership and have a clean, transparent structure. In
addition, under the current circular ownership, major shareholders can have small
stakes in several companies which could make them vulnerable to hostile
takeovers. As new circular ownership is prohibited under the Korean Fair Trade
Law, it is tough for major shareholders to enhance ownership under the current
structure; therefore, a holding company structure may be a potential option.
134
Exhibit 255: A scenario showing Samsungs potential future company structure (for illustration purpose only)
KunheeLee's
family
SamsungC&T
SamsungFinancial
holdingcompany
SamsungSecurities
SamsungLife
SamsungF&M
SamsungElectronics
holdingcompany
SamsungCard
SamsungElectronics
SEMCO
SDI
SamsungHeavy
Industries
Source: Various media sources (including Maeil Business, Korea Economic Daily), Goldman Sachs Global Investment Research.
135
LG Card
LG Telecom
LG Information &
Communications
LG Cable
LG Electronics
LG Mart
LG International
LG Home
Shopping
LG Securities
LG-Caltex Oil
LG
Petrochemical
136
LG Chem spin-off
LG Electronics spin-off
(Old)
LG Electronics
(Old)
LG Chem
LG Electronics
Investment
(LGEI)
LG Chem
Investment
(LGCI)
(New)
LG Chem
LG H&H
(New)
LG Electronics
Koo family
9.6%
Treasury:
10.8%
(Old)
LG Electronics
Koo family
9.6%
LG Electronics
Investment
(LGEI)
9.6%
10.8%
(New)
LGElectronics
137
Exhibit 261: Swapping the stake in (New) LGE for stake in LGEI, after a series of tender
offers, Koo familys stake in LGEI increased to 41.4%
Koo family
41.4%
LG Electronics
Investment
(LGEI)
30.7%
(New)
LGElectronics
Exhibit 262: LGCI and LGEI were merged into a single holding company, LG Corp
Merger between LGCI and LGEI
LG Chem
Investment
(LGCI)
LG Electronics
Investment
(LGEI)
LG Corp
LG H&H
LG Chem
LG Electronics
Post the restructuring process, Koo family has higher ownership of affiliate companies with
49% ownership of the holding company LG Corp as off end-3Q15.
138
Sal de Vida
Korea
Koo Family
Global Dynasty
Natural
Resources PEF
7.5%
48.6%
27.9%
LG
(003550.KS)
30.1%
30.4%
LG Hausys
(108670.KS)
33.5%
LG Chem
(051910.KS)
LG Life Sciences
(068870.KS)
100%
85%
LG CNS
Serveone
36%
35%
LG UPlus
(032640.KS)
G II R
(035000.KS)
98.4%
The Faceshop
100%
100%
100%
34%
LG H&H
(051900.KS)
100%
LG N-sys
LG-Toyo
Engineering
LG International
(001120.KS)
51%
Pantos Logistics
33.1%
Silicon Works
(108320.KS)
33.7%
LG Electronics
(066570.KS)
100%
Medialog
HS Ad
37.9%
LG Display
(034220.KS)
40.8%
100%
Haitai Beverage
LG Innotek
(011070.KS)
WithU
90%
51%
LG Siltron
100%
51%
Coca-Cola
LG Hitachi
Watersolution
CNP Cosmetics
Hi Business
Logistics
86%
LG Sports
100%
50%
LG MMA
Post the restructuring, the combined market cap of LG Chem, LGE, LG H&H, and LG Corp
has substantially increased vs prior to the restructuring. In addition, valuation multiples
have rerated after transforming to a holding company structure.
(Wbn)
(x)
35,000
20
30,000
15
25,000
20,000
10
15,000
10,000
5,000
0
LGC(old)+LGE(old)
LGCorp+LGC+LGH&H
+LGLifeSciences+LGE
0
LGC(old)+LGE(old) LGCorp+LGC+LGH&H
+LGLifeSciences+LGE
Source: Company data, Datastream.
139
Buyback
startdate
Buyback
enddate
10/16/2000
3/25/2002
8/2/2002
3/7/2003
10/17/2003
4/7/2004
9/13/2004
6/10/2005
4/14/2006
1/12/2007
11/26/2014
10/29/2015
1/28/2016
10/23/2000 12/26/2000
4/2/2002 4/23/2002
8/6/2002 8/28/2002
3/11/2003 4/10/2003
10/21/2003 1/13/2004
4/12/2004 4/30/2004
9/17/2004 11/18/2004
6/14/2005 8/29/2005
4/18/2006 6/30/2006
1/16/2007 3/16/2007
11/27/2014 1/26/2015
10/30/2015 1/12/2016
1/29/2016 4/28/2016
#ofcommon %ofcommon
share
share
buyback(mn)
outstanding
3.00
2.0
1.33
0.9
2.66
1.7
3.10
2.0
2.15
1.4
3.06
2.0
4.00
2.7
3.80
2.6
2.60
1.8
2.80
1.9
1.65
1.1
2.23
1.5
2.10
1.4
Common #ofpreferred
sharebuyback
share
amount(Wbn) buyback(mn)
503
0.40
506
0.21
881
0.40
911
0.47
963
0.33
1,877
0.26
1,807
2,033
0.30
1,614
0.40
1,640
0.40
2,189
0.25
2,876
1.24
2,468
0.53
%ofpreferred
share
outstanding
1.7
0.9
1.7
2.0
1.4
1.1
Preferred
sharebuyback
amount(Wbn)
30
44
65
67
84
94
1.3
1.8
1.8
1.1
5.4
2.5
109
193
180
257
1,376
522
Total
Buybackfor
sharebuyback
cancellation?
amount(Wbn)
532
X
549
X
946
X
978
O
1,043
O
1,971
O
1,807
X
2,142
X
1,807
X
1,820
X
2,446
X
4,253
O
2,990
O
Note: Buyback and cancellation announced on Jan 28, 2016 has not been completed yet, so the buyback and cancellation amount is subject to change; O denotes
that the buyback was for cancellation, while X denotes it was not.
Source: Company data.
If SEC were to become more proactive in returning to its shareholders going forward and
execute share buybacks with cancellations on a regular basis, we would be more confident
in applying a smaller discount to its valuation as the company will not be holding onto a
large cash pile. Assuming a 25% discount to its net cash as opposed to 50% currently, our
DCF based cross-check would imply a theoretical valuation for the base case of W1.34mn,
while applying no discount at all would increase it to W1.46mn.
When SEC announced a special shareholder return initiative program in October 2015, the
company said that it will buy back and cancel a total W11.3tn worth of shares. This will be
done in three to four stages and completed within one year, and the first stage was
completed in early January while the company is currently on the second stage that is
expected to end by April 28, 2016. The company also announced that it will return 30%-50%
of annual FCF to shareholders for the next three years, which will include dividends and
share buybacks with cancellation, and the focus will primarily be on dividends.
With all these announcements in mind, we analyze what the impact would be from SEC
buying back and cancelling shares and paying out dividends using 80% of its annual net
income each year (as this will maximize dividend payout to shareholders without lowering
SECs net cash level by 2025, i.e., maintaining net cash level as of 2015 despite a
substantial increase in shareholder return). After its W11.3tn buyback, we assume that SEC
starts to buy back shares starting in 2019, and for the sake of simplicity assume that it only
buys back common shares at W1,285,000 per share (closing price as of April 6 close).
Looking at SECs current shareholder structure after the completion of the first stage of
share buyback and cancellation, major shareholders & related parties including Kun-hee
Lee own a total of 17.91% stake in SEC common shares, and treasury stake is at 12.4%;
therefore, the stake that could be used for further potential restructuring by the major
140
shareholders stands at 30.31%. Assuming that the share held by major shareholders and
treasury shares are unchanged, the stake that could be used for potential restructuring
could go up to 50% by 2025E in the scenario where buyback and cancellation and paying
dividends with 80% of net income are done each year.
Exhibit 267: Combined major shareholders and treasury stake in SEC common shares could go up to 50% by 2025E
Scenario analysis: Change in common shares stake from buying back and cancelling shares and paying dividend using 80% of
annual net income each year
Netincome(Wtn)
80%ofnetincome(Wtn)
Shareprice(W)
Dividendpaid(Wtn)
Buybackamount(Wtn)
Sharesboughtbackandcancelled(mn)
Totalcommonsharesatperiodend(mn)
Majorshareholders&relatedparties(mn)
Treasuryshares(mn)
%stakeheldbymajorshareholders(A)
%oftreasuryshares(B)
%stakethatcouldbeusedforpotentialrestructuring(A+B)
2019E
2020E
2021E
2022E
2023E
2024E
2025E
19.5
19.1
18.3
17.3
16.1
15.3
14.7
15.6
15.3
14.7
13.9
12.9
12.3
11.8
1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000 1,285,000
4.3
4.4
4.6
4.7
4.8
4.8
4.8
11.3
10.9
10.1
9.2
8.1
7.4
7.0
8.8
8.5
7.9
7.1
6.3
5.8
5.4
129.1
120.7
112.8
105.7
99.4
93.6
88.2
26.0
26.0
26.0
26.0
26.0
26.0
26.0
18.0
18.0
18.0
18.0
18.0
18.0
18.0
20.1%
21.5%
23.0%
24.6%
26.1%
27.8%
29.5%
13.9%
14.9%
15.9%
17.0%
18.1%
19.2%
20.4%
34.0%
36.4%
39.0%
41.6%
44.2%
47.0%
49.9%
Note: Used share price of W1,285,000 (closing price of April 6, 2016) when making assumption of buyback amount.
Source: Datastream, Goldman Sachs Global Investment Research.
Doing a similar analysis on valuation and dividends, using 80% of net income each year
will have a better impact on EPS and DPS compared with our base case, and consequently
2025E forward P/E will be 7.9x (vs. 10.9x in base case) and 2025E dividend yield at 4.4% (vs.
2.7% in base case).
Exhibit 268: Buyback and cancellation could potentially lower the P/E multiple to 7.9X and raise dividend yield to 4.4%
Scenario analysis: Change in valuation and dividend yield from buying back and cancelling shares and paying dividend using
80% of annual net income each year
2019E
19.5
15.6
4.3
11.3
8.8
129.1
2020E
19.1
15.3
4.4
10.9
8.5
120.7
2021E
18.3
14.7
4.6
10.1
7.9
112.8
2022E
17.3
13.9
4.7
9.2
7.1
105.7
2023E
16.1
12.9
4.8
8.1
6.3
99.4
2024E
15.3
12.3
4.8
7.4
5.8
93.6
2025E
14.7
11.8
4.8
7.0
5.4
88.2
Buybackanddividendwith80%ofnetincome
EPS(W)
EPSgrowth(%)
DPS(W)
P/E(x)
Dividendyield(%)
146,024
4%
33,115
8.8
2.6%
152,949
5%
36,580
8.4
2.8%
157,090
3%
40,356
8.2
3.1%
158,651
1%
44,388
8.1
3.5%
157,402
1%
48,586
8.2
3.8%
158,891
1%
51,590
8.1
4.0%
162,165
2%
56,233
7.9
4.4%
Basecase
EPS(W)
EPSgrowth(%)
DPS(W)
P/E(x)
Dividendyield(%)
141,360
0%
31,000
9.1
2.4%
140,797
0%
32,000
9.1
2.5%
137,462
2%
33,000
9.3
2.6%
132,208
4%
34,000
9.7
2.6%
125,416
5%
35,000
10.2
2.7%
121,192
3%
35,000
10.6
2.7%
118,375
2%
35,000
10.9
2.7%
Netincome(Wtn)
80%ofnetincome(Wtn)
Dividendpaid(Wtn)
Buybackamount(Wtn)
Sharesboughtbackandcancelled(mn)
Totalcommonsharesatperiodend(mn)
Note: Used share price of W1,285,000 (closing price of April 6, 2016) when making assumption of buyback amount, P/E estimates, and dividend yield estimates.
Source: Datastream, Goldman Sachs Global Investment Research.
141
Therefore, we believe that SEC could use buyback and cancellation as a means to improve
shareholder return through EPS and DPS growth, but the major shareholders will also be
incentivized to use buybacks to strengthen the ownership of the key company in the
Samsung conglomerate. We however did not include the potential share buyback and
cancellation beyond 2016 in our assumptions for all three cases, as we believe that SEC is
still at a transition stage from mainly using cash for capital expenditure to meaningfully
returning back to shareholders, and a radical change in buyback or dividend payment
behavior is unlikely to happen in the short term.
Exhibit 269: Stock price information
COMPANY NAME
Ticker
Hikvision
002415.SZ
AAC Tech.
Dahua Tech.
COMPANY NAME
Ticker
Rmb31.36
Samsung SDI
006400.KS
2018.HK
HK$58.00
Renesas
6723.T
668.00
002236.SZ
Rmb37.30
Fujitsu
6702.T
370.80
Parade Tech.
4966.TWO
NT$328.00
NGK Spark
5334.T
1,924.00
Largan Precision
3008.TW
Hermes Microvision
3658.TWO
NT$2,475.00
TDK
6762.T
NT$821.00
ASUSTeK
2357.TW
W95,200.00
5,730.00
NT$283.50
Casetek
5264.TW
NT$165.50
Mabuchi Mot.
6592.T
4,720.00
TSMC
2330.TW
NT$153.50
Sony
6758.T
2,850.00
Nidec
6594.T
7,238.00
Minebea
6479.T
781.00
Joyson NE
600699.SS
Rmb36.98
Catcher
2474.TW
NT$263.00
Mitsubishi Elec.
6503.T
Mediatek
2454.TW
NT$231.00
Panasonic
6752.T
Lenovo
0992.HK
HK$5.69
Wistron
3231.TW
NT$19.45
Murata Mfg.
6981.T
United Microelec.
2303.TW
NT$12.75
TPK Holding
3673.TW
Advantest
6857.T
945.00
SK Hynix
000660.KS
Hirose Elec.
6806.T
12,030.00
Disco
6146.T
9,030.00
JDI
6740.T
204.00
Quanta Comp.
2382.TW
NT$55.20
Oki Elec.
6703.T
141.00
Pegatron
4938.TW
NT$72.70
Yamaha
7951.T
3,225.00
IRISO Elec.
6908.T
4,715.00
Ibiden
4062.T
1,302.00
Samsung Elec.
005930.KS
Alps Elec.
6770.T
12,275.00
NT$68.60
W27,500.00
W1,285,000.00
W54,200.00
1,092.50
870.30
NEC
6701.T
268.00
Taiyo Yuden
6976.T
1,015.00
Hitachi
6501.T
473.20
1,709.00
Pacific Ind.
7250.T
965.00
4,355.00
Nitto Denko
6988.T
5,802.00
Rohm
6963.T
NGK Insulators
5333.T
1,850.00
Kyocera
6971.T
4,634.00
Japan Aviation
6807.T
1,180.00
Nippon Ceramic
6929.T
1,832.00
SCREEN
7735.T
832.00
Compal Elec.
2324.TW
Shinko Elec.
6967.T
594.00
NT$19.80
Mitsumi Elec.
6767.T
464.00
NT$81.20
SUMCO
3436.T
622.00
Hua Hong
1347.HK
HK$7.64
135.00
Hon Hai
2317.TW
Seoul Semicon.
046890.KQ
Hitachi Kokusai
6756.T
1,221.00
Nippon Chemi-Con
6997.T
Tokyo Electron
8035.T
6,669.00
Nichicon
6996.T
Ulvac
6728.T
3,385.00
Acer
2353.TW
W14,850.00
717.00
NT$12.05
142
143
Disclosure Appendix
Reg AC
We, Marcus Shin and Giuni Lee, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject
company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to
the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
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Disclosures
Coverage group(s) of stocks by primary analyst(s)
Marcus Shin: Korea Technology.
Korea Technology: Samsung Electro-Mechanics, Samsung Electronics, Samsung SDI Co., Samsung SDS Co., Seoul Semiconductor, SK Hynix Inc..
Buy
Hold
Sell
Buy
Hold
Sell
Global
31%
53%
16%
63%
58%
52%
As of January 1, 2016, Goldman Sachs Global Investment Research had investment ratings on 3,254 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell
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provided investment banking services within the previous twelve months.
144
1750000
1650000
1350000
1600000
1500000
1700000
1450000
1550000
1400000
1600000
1350000
1400000
1300000
1550000
1400000
1800000
1800000
May 5
2,200
2,150
2,100
2,050
2,000
1,950
1,900
1,850
1,800
1,750
1,700
F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D
2013
2014
2015
Index Price
Stock Price
2,000,000
1,900,000
1,800,000
1,700,000
1,600,000
1,500,000
1,400,000
1,300,000
1,200,000
1,100,000
1,000,000
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 12/31/2015.
Rating
Covered by Marcus Shin,
Price target
Price target at removal
as of Oct 6, 2014
Not covered by current analyst
Korea SE Composite
(KOSPI)
The price targets show n should be considered in the context of all prior published Goldman Sachs research, which may or
may not have included price targets, as w ell as developments relating to the company, its industry and financial markets.
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