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Samsung, Hyundai Leading Korean Stock Rally

Posted August. 25, 2009 07:28,   


Samsung Electronics and Hyundai Motor yesterday helped the benchmark stock market KOSPI index to exceed 1,600 points for the first time in 13 months.

Samsung Electronics surged 26,000 won (20.90 U.S. dollars), or 3.4 percent, to hit a record 783,000 won (630 dollars), beating its previous mark of 764,000 won (614 dollars) May 15.

Hyundai Motor also continued its record-setting pace for two straight days, jumping 4,500 won (3.62 dollars), or 4.4 percent, to close at 107,500 won (86.50 dollars). Foreign investors are accordingly snapping up Korean stocks.

As an old saying goes, however, a beautiful plant often contains poison. A potential slump in the prices of the largest cap stocks could instantly cool investor sentiment. The key to the Korean stock market’s rally is if and when the real economy will perk up and spread the momentum to small and mid-cap shares.

Will Samsung Electronics hit 1 million won (804 dollars)?

Securities companies have issued reports suggesting that the value of Samsung Electronics’ stock will likely rise further. Kiwoom Securities last week said the company’s target price will reach one million won (804 dollars). Many other brokerages are also raising their forecasts for Samsung.

So can Samsung break the psychological barrier of one million won in stock value? The securities industry has always circulated reports suggesting the amount as Samsung’s target price whenever the market was bullish. The rosy prospect surfaced in the wake of the tech bubble in the early 2000s, and again in 2004 and 2006.

Samsung has failed to break the mark, however, because of economic downturns such as the 2003 collapse of the domestic credit card bubble and the global economic crisis that erupted last year. The target of one million won was called the “chronic jinx” of the Korean stock market.

Many analysts predict a different story this time, however. More than anything, the quality of profit at Korean companies has improved. Kiwoom’s senior researcher Kim Byeong-ki said, “Samsung Electronics is expected to post 8.5 trillion won (6.84 billion dollars) in net profit this year, up more than 50 percent from last year.”

The company’s 2004 net profit was 10 trillion won (9.5 billion dollars), but Samsung Electronics’ stock broke an all-time high yesterday because its three main businesses are making great strides, and record performances are expected next year.

The semiconductor market peaked then started to decline five years ago, but the chip market now is about to take off. Samsung’s LCD business is also expected to far exceed its record set in 2004.

More than anything, Samsung has consolidated its runner-up position behind global market leader Nokia. The Korean company could target the No. 1 position in 2011 if it implements an ambitious marketing pitch focusing on low-cost mobile phones.

For Hyundai Motor, most analysts predict a further rise in the carmaker’s stock even after it set new highs for two straight trading days. Kyobo Securities analyst Song Sang-hoon raised Hyundai’s target price to 120,000 won (96.50 dollars), saying, “The company’s market shares at home and abroad are rising thanks to ‘new vehicle effects’ resulting from the imminent introduction of the compact SUV Tucson and the mid-size sedan Sonata.”

“If the economy improves, Hyundai Motor is set to benefit the most.”

Hyundai’s reserves for sales assurance declined from 400 billion won (322 million dollars) last year to 130 billion won (104.6 million dollars) this year, so operating profit is set to surge to 1.78 trillion won (1.43 billion dollars) this year, up about 15 percent from previous projections.

Lee Gyeong-soo, a researcher at Taurus Investment & Securities, said, “The rise of Samsung Electronics and Hyundai Motor’s strides on the world market means Korean companies have become champions in global industrial restructuring,” adding, “Their shares are burdened by instant price gains, but have ample room for a further rise considering structural changes.”

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