www.fitchratings.com Open in urlscan Pro
2600:9000:236e:d000:9:b352:9f80:93a1  Public Scan

Form analysis
0 forms found in the DOM

Text Content

 * People
 * Product
 * Insights

Search
Subscribe

Rating Action Commentary


FITCH AFFIRMS SAMSUNG ELECTRONICS AT 'AA-'; OUTLOOK STABLE

Thu 21 Apr, 2022 - 4:19 AM ET



Fitch Ratings - Seoul - 21 Apr 2022: Fitch Ratings has affirmed South
Korea-based Samsung Electronics Co., Ltd.'s (SEC) Long-Term Foreign- and
Local-Currency Issuer Default Ratings (IDR) at 'AA-' with a Stable Outlook. The
agency has also affirmed SEC's senior unsecured rating at 'AA-'.

The ratings on SEC reflect its strong credit profile, which is supported by its
technology leadership, strong market positions, and a well-diversified business
portfolio that helps to mitigate cash-flow fluctuations, particularly from the
cyclical semiconductor and display panel businesses. Fitch expects the company's
financial position to remain strong, backed by robust cash generation and
substantial financial flexibility. However, SEC's ratings continue to reflect
its exposure to cyclical and capital-intensive industries.


KEY RATING DRIVERS

Less Severe Memory Chip Downcycle: Fitch believes the downturn in the
memory-chip sector will be milder than in the previous cycle, given continued
solid demand from data centres, 5G smartphones and automobiles. Memory
semiconductor companies, including SEC, are likely to behave rationally and
adjust production levels accordingly, resulting more balanced demand and supply
conditions.

We forecast DRAM prices to stabilise towards 2H22 and NAND prices to recover
earlier than expected due to supply disruption in a competitor's production
facility. SEC's non-memory business is likely to continue healthy growth given
tight supply conditions. We forecast SEC's semiconductor revenue will rise by
around 15% yoy in 2022, after growth of around 29% in 2021.

Technology Leadership: Fitch expects SEC to maintain above-industry
profitability through the cycle. Its massive investments in R&D and
manufacturing have given it the technology leadership and significant scale to
generate sufficient operating cash flow to fund investments. Substantial capex
will help SEC remain an industry leader in memory capacity with the best
technology mix. SEC also leads in other segments such as logic chips, display
panels and other consumer electronics.

Still Ahead of Chinese Challengers: China's aggressive investment to foster its
own memory-chip industry poses a long-term threat to SEC. However, Fitch
believes Chinese companies will continue to face challenges to organically
develop memory technologies to close the gap with industry leaders in the medium
term. Geopolitical tensions between US and China may also prevent Chinese
semiconductor companies from acquiring the necessary equipment and intellectual
property for technological advancements.

Solid Smartphone Sales: We expect SEC to retain leadership in the smartphone
market due to growing penetration of 5G phones and consumer acceptance of new
form factors, such as foldable phones. Increasing exposure to the high-end
segment will support the average selling price in this segment. However, the
rising cost of production and logistics expenses and generally longer
replacement cycle are likely to put pressure on SEC's handset profitability in
the medium term. We forecast SEC's handset margin to fall below 10% in 2022,
with the segment making up around 20% of operating profit.

OLED Penetration Supports Display Margin: Rising OLED display penetration in the
premium smartphone segment and IT products supports SEC's display panel business
and provides a buffer against downside in liquid crystal displays (LCD). SEC
will exit LCD manufacturing in China and Korea in 2022, and is likely to replace
capacity with quantum dot display panels, the company's main focus for large
panels. We forecast display revenue to remain flat in 2022 on the declining LCD
business and the operating margin to decline to 11% from the high level of 14%
in 2021.

Macro Uncertainty: Pandemic-driven government intervention, particularly in
countries that maintain a "zero Covid" policy, could heighten supply volatility
and further delay supply-chain normalisation. Rising production costs could also
put pressure on SEC's overall operating performance in the short term.

However, SEC's dominance in its core products, advanced technology, ability to
procure necessary resources via extensive networks will support profitable
growth. SEC's involvement in the entire value chain - from memory
semiconductors, foundry business, display panels to end-products such as
smartphones and TVs - gives it greater bargaining power and allows it to retain
most of the value added in the product chain. This product ecosystem gives it a
uniquely favourable position compared with peers, which mostly focus on certain
parts of the value chain.

Ample Financial Flexibility: We believe SEC will continue to generate positive
free cash flow (FCF) on solid cash flow from operations, even in a challenging
economic environment, evident from its resilient operating results in 2020 and
2021 amid the Covid-19 pandemic. We expect a stable EBITDA margin of 28%-30%,
supported by higher profitability in memory chips. We believe SEC's robust
liquidity profile, with cash and cash equivalents fully covering end-2021 total
debt, gives it flexibility for acquisitions without substantially raising gross
leverage.




DERIVATION SUMMARY

SEC's credit profile is well-positioned among global peers in the technology
sector. It is one of the leading manufacturers of memory chips, display panels,
handsets and consumer electronics. The company's exposure to cyclical
industries, such as memory chips, handsets and display panels, is a weakness
compared with higher-rated Microsoft Corporation (AAA/Stable), which has higher
margin visibility, underpinned by a large recurring-revenue base.

SEC's margins are generally lower than that of 'A' rated peers, such as Intel
Corporation (A+/Stable), due to its exposure to the competitive
consumer-electronics business, including smartphones and home appliances.
However, this is more than offset by SEC's scale, diversity, as well as strong
operating cash and FCF generation. SEC also has one of the strongest balance
sheets among peers rated in the 'AA' category, with a net cash position and low
leverage.




KEY ASSUMPTIONS

Fitch's Key Assumptions Within Our Rating Case for the Issuer

- Revenue to increase by high-single-digit percentages in 2022 due to solid
memory semiconductor performance and improvement in product mix, before
moderating to mid-single-digit percentages thereafter

- EBITDA margin of 29%-30% in 2022-2023

- Annual capex of KRW50 trillion-55 trillion in 2022-2023

- Dividends paid in 2022 in line with the company's guidance


RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating
action/upgrade:

- Fitch does not foresee positive rating action over the medium term due to
SEC's exposure to cyclical businesses and capital-intensive sectors.

Factors that could, individually or collectively, lead to negative rating
action/downgrade:

- A decline in the company's competitiveness, a significant loss in its market
share in major business segments, or lower profitability resulting in negative
FCF or total debt to operating EBITDA above 1.0x (2021: 0.2x) on a sustained
basis.


BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Non-Financial Corporate issuers have a
best-case rating upgrade scenario (defined as the 99th percentile of rating
transitions, measured in a positive direction) of three notches over a
three-year rating horizon; and a worst-case rating downgrade scenario (defined
as the 99th percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and worst-case
scenario credit ratings for all rating categories ranges from 'AAA' to 'D'.
Best- and worst-case scenario credit ratings are based on historical
performance. For more information about the methodology used to determine
sector-specific best- and worst-case scenario credit ratings, visit
https://www.fitchratings.com/site/re/10111579.


LIQUIDITY AND DEBT STRUCTURE

Robust Liquidity Profile: SEC retains a robust liquidity profile, with KRW121
trillion in cash and cash equivalents (including short-term investments) fully
covering its total debt of KRW15 trillion as of end-2021. Its debt is mostly a
short-term trade product, with little financial debt on its balance sheet except
for foreign-currency debt issued by Harman, its auto-parts manufacturing
subsidiary. SEC maintains a similar cash balance throughout the year with no
seasonality. We expect the company to continue to maintain its net cash position
over the longer term.


ISSUER PROFILE

SEC is a leading technology company based in Korea, with a diversified business
portfolio in semiconductors, mobile handsets, display panels, TVs and other
consumer electronics. SEC is the world's largest manufacturer of DRAM and NAND
chips, mobile OLED panel displays, smartphones and TVs.


REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the
Applicable Criteria.


ESG CONSIDERATIONS

Unless otherwise disclosed in this section, the highest level of ESG credit
relevance is a score of '3'. This means ESG issues are credit-neutral or have
only a minimal credit impact on the entity, either due to their nature or the
way in which they are being managed by the entity. For more information on
Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

RATING ACTIONS

Entity / Debt  

Rating  

Prior  


Samsung Electronics Co., Ltd.
LT IDR
AA- 
Affirmed
AA- 
LC LT IDR
AA- 
Affirmed
AA- 
 * senior unsecured

LT
AA- 
Affirmed
AA- 
Previous
Page

of 110 rows20 rows50 rows100 rows500 rows
Next
Loading...

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com


PARTICIPATION STATUS

The rated entity (and/or its agents) or, in the case of structured finance, one
or more of the transaction parties participated in the rating process except
that the following issuer(s), if any, did not participate in the rating process,
or provide additional information, beyond the issuer’s available public
disclosure: Samsung Electronics Co., Ltd.


APPLICABLE CRITERIA

 * Country-Specific Treatment of Recovery Ratings Criteria (pub. 05 Jan 2021)
 * Corporates Recovery Ratings and Instrument Ratings Criteria (pub. 09 Apr
   2021) (including rating assumption sensitivity)
 * Corporate Rating Criteria (pub. 15 Oct 2021) (including rating assumption
   sensitivity)
 * Sector Navigators - Addendum to the Corporate Rating Criteria (pub. 15 Oct
   2021)





APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to
criteria providing description of model(s).

Corporate Monitoring & Forecasting Model (COMFORT Model), v8.0.2 (1)


ADDITIONAL DISCLOSURES

 * Dodd-Frank Rating Information Disclosure Form
 * Solicitation Status
 * Endorsement Policy


ENDORSEMENT STATUS

Samsung Electronics Co., Ltd. EU Endorsed, UK Endorsed


UNSOLICITED ISSUERS

Samsung Electronics Co., Ltd. (Unsolicited)

With Rated Entity or Related Third Party Participation No With Access to
Internal Documents No With Access to Management No


DISCLAIMER & DISCLOSURES

All Fitch Ratings (Fitch) credit ratings are subject to certain limitations and
disclaimers. Please read these limitations and disclaimers by following this
link: https://www.fitchratings.com/understandingcreditratings. In addition, the
following

Read More


SOLICITATION STATUS

The ratings above were solicited and assigned or maintained by Fitch at the
request of the rated entity/issuer or a related third party. Any exceptions
follow below.



Unsolicited IssuersENTITY/SECURITYISIN/CUSIPRATING TYPESolicitation
StatusSamsung Electronics Co., Ltd. USD 100 mln 7.7% bond/note
01-Oct-2027USY74718AQ37Long Term RatingUnsolicitedSamsung Electronics Co., Ltd.
USD 100 mln 7.7% bond/note 01-Oct-2027US796050AE22Long Term
RatingUnsolicitedSamsung Electronics Co., Ltd.-Local Currency Long Term Issuer
Default RatingUnsolicitedSamsung Electronics Co., Ltd.-Long Term Issuer Default
RatingUnsolicited







ENDORSEMENT POLICY

Fitch’s international credit ratings produced outside the EU or the UK, as the
case may be, are endorsed for use by regulated entities within the EU or the UK,
respectively, for regulatory purposes, pursuant to the terms of the EU CRA
Regulation or the UK Credit Rating Agencies (Amendment etc.) (EU Exit)
Regulations 2019, as the case may be. Fitch’s approach to endorsement in the EU
and the UK can be found on Fitch’s Regulatory Affairs page on Fitch’s website.
The endorsement status of international credit ratings is provided within the
entity summary page for each rated entity and in the transaction detail pages
for structured finance transactions on the Fitch website. These disclosures are
updated on a daily basis.

Technology, Media, and Telecom
Corporate Finance
Asia-Pacific
South Korea


ENTITIES

 * Samsung Electronics Co., Ltd.





ISSUER CONTENT

 * Samsung Electronics Co., Ltd.
 * Moderate Recovery, Challenges Remain for APAC Tech in 2022
 * Fitch Ratings 2022 Outlook: APAC Technology
 * Samsung Electronics Co., Ltd.
 * Fitch Affirms Samsung Electronics at 'AA-'; Outlook Stable
 * Global Chip Shortage to Boost Semiconductors’ 2021 Performance
 * What Investors Want to Know: Asia-Pacific Technology
 * Lingering Trade Tensions Key Risk to APAC Tech Sector Stability
 * Fitch Ratings 2021 Outlook: Asia-Pacific Technology





RECOMMENDED CONTENT

 * UPL Corporation Limited
 * China Huadian Corporation Ltd.
 * Fitch Ratifica Calificación de Consorcio ARA en ‘A+(mex)’; Perspectiva
   Estable
 * Fitch Affirms Lockheed Martin at 'A-'; Outlook Stable
 * Proposed Tax Reform Weakens Cost Positions for Chilean Miners
 * PBF Logistics LP
 * Tupy S.A.
 * General Shopping e Outlets do Brasil S.A.
 * Globalization of Asset Managers Continue
 * Globalization of Asset Managers Continues (More European Platforms Setting Up
   in the U.S.)





FITCH RATINGS ANALYSTS

Shelley Jang
Director
Primary Rating Analyst
+822 3278 8370
shelley.jang@fitchratings.com
Fitch Australia Pty Ltd, Korea Branch
9F Kyobo Securities Building 97 Uisadang-daero, Youngdeungpo-gu Seoul 07327

Jia Wen, CFA
Associate Director
Secondary Rating Analyst
+852 2263 9627
jia.wen@fitchratings.com


Steve Durose
Managing Director
Committee Chairperson
+61 2 8256 0307
steve.durose@fitchratings.com



MEDIA CONTACTS

Wai Lun Wan
Hong Kong
+852 2263 9935
wailun.wan@thefitchgroup.com

Alanis Ko
Hong Kong
+852 2263 9953
alanis.ko@thefitchgroup.com

Leslie Tan
Singapore
+65 6796 7234
leslie.tan@thefitchgroup.com

RATINGS KEYOUTLOOKWATCHPositiveNegativeEvolvingStable 

* Long Term/Short Term Issuer Default Rating displayed in orange denotes EU or
UK Unsolicited and Non-Participatory Ratings

Where there was a review with no rating action (Review – No Action), please
refer to the “Latest Rating Action Commentary” for an explanation of key rating
drivers

*Premium content is displayed in Fitch Red



ABOUT

 * About UsContactCareersFeedbackMedia Relations

REGULATORY

 * Regulatory AffairsCriteriaCode of Conduct & EthicsPrivacy Policy

PRODUCT

 * Rating ActionsCoverageResearch & AnalyticsRating Products & ToolsRating
   PerformanceNewsletters

REGION

 * EuropeNorth AmericaAfricaAsiaLatin AmericaMiddle East

SECTORS

 * EconomicsBanksInsuranceSovereignsCorporatesStructured FinanceNon-Bank
   Financial InstitutionsPublic Finance - InternationalPublic Finance - United
   StatesInfrastructure & Project Finance

FITCH GROUP

 * Fitch GroupFitch RatingsFitch SolutionsFitch BohuaFitch Learning

Copyright © 2022 Fitch Ratings, Inc., Fitch Solutions, Inc. and their
subsidiaries. Policies | Manage Cookies | Manage Preferences Build v4.6.104
 * 
 * 


We use cookies to deliver our online services, to understand how they are used
and for advertising purposes. Details of the cookies we use and instructions on
how to disable them are set out in our Privacy Policy. To agree to our use of
cookies click Accept.
DeclineAcceptOptions