Strategic Analysis and Valuation of Samsung Electronics Co. Ltd

Khoa Nam Nguyen

Student thesis: Master thesis

Abstract

The thesis’ purpose is to perform a valuation of Samsung Electronics Co., Ltd in order to find the fair value of a Samsung share on March 1st, 2019. The share price is estimated through the application of the discounted cash flow model and the Economic Value Added model based on the findings from the strategic and financial analysis, and the forecasting of Samsung’s future performance. Furthermore, multiple-based valuation is carried out in order to assist the results from the valuation methods as mentioned above. A sensitivity analysis is conducted at the end to see how sensitive the estimated share price is to small changes in parameters. The strategic analysis found that the company’s macroenvironment is characterized by a swift development in the mobile communication technology along with an accelerated advancement in the global online population and some regulations in the global smartphone and tablet market. Moreover, the industry is considered to be oligopolistic since it is characterized by a few large firms, differentiated products, strong barriers to entry and some degree of pricing power. The financial analysis revealed that Samsung’s profitability has been satisfactory in the last five years, although the company’s return on equity has been lower than its peers, especially Apple and Huawei. Nonetheless, the company’s return on invested capital and return on assets have on average been higher than its peers. In order to make the valuation more credible, Samsung’s future performance was forecasted under two different scenarios: realistic scenario and best case scenario. It is expected that the company’s revenue will decrease in the first two years of the explicit period due to the low CAGR in smartphone shipments and negative CAGR in tablet shipments. However, the revenue is expected to increase in 2021 and onwards once the global population gets accustomed to new form factors of smartphones and tablets, and 5G network devices. As of March 1st, 2019, the price of a Samsung share is ₩45.100. Based on the conclusions drawn from the strategic and financial analysis, along with the forecasting and the calculations from the present value models, the estimated fair share price is ₩64.879, which implies that the share price on March 1st, 2019 is underpriced. Therefore, the recommendation is to buy the Samsung stock as the market consensus is that the stock will outperform the market.

EducationsMSc in Finance and Investments, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2019
Number of pages88