(Bloomberg) -- Samsung Electronics Co.’s latest flagship smartphone isn’t the antidote to a stock slump that’s wiped more than $60 billion from the technology giant’s market value since November.
That’s the thinking of investors like Sat Duhra, who helps manage $371 billion at Janus Henderson Investors. His fund has reduced holdings of Samsung and its South Korean industry peers amid concern over cooling chip prices and lackluster global smartphone demand. Morgan Stanley is among brokerages taking a similar position, reaffirming that it’s still neutral on the stock after cutting its rating in November.
Shares of the world’s largest smartphone and memory-chip maker have fallen 18 percent from a record high on Nov. 1 as investors expressed rare skepticism about the South Korean firm. Samsung unveiled the Galaxy S9 at Mobile World Congress in Barcelona this week, banking on new features such as augmented-reality based emojis, camera upgrades and stereo speakers to take on Apple Inc.’s iPhone X. But Duhra is underwhelmed.
“There’s actually not that big of a step up in these phones versus the last model,” Duhra said in an interview. “Mobile handsets will be steady but nothing exciting,” he said, while noting that he expects earnings from the chip business to slow.
Duhra says he doesn’t see Asian technology hardware makers generating as much profit as they did last year. He’s been buying financial stocks at the expense of some of those companies, he said. While he declined to comment on individual stocks, citing company policy, Samsung’s weighting in his Asia Dividend Income Fund slipped to 4.9 percent as of the end of January compared with 5.4 percent December.
As brokerages either slashed their ratings or earnings outlooks for Samsung, the proportion of hold ratings on the company has risen close to 10 percent, according to data compiled by Bloomberg. That’s the highest since January 2017, when the company was recovering from its batteries exploding in its Galaxy Note 7 phablet smartphones.
When Morgan Stanley cut its rating to equal-weight from overweight, it cited slowing momentum for chips, which account for roughly two-thirds of Samsung’s operating profit. Then, in a Feb. 25 report, it said short-term risks, such as a maturing smartphone market, are arising for other key businesses. Mobile phones, which have long served as the other pillar of the company’s growth, account for about a fifth of profit.
Global shipments of smartphones rose 2.7 percent to 1.54 billion units in 2017 compared with a year earlier, according to Gartner. That’s the slowest pace of growth since the research firm started compiling data around 2011. In the fourth quarter, global smartphone shipments fell 5.6 percent from a year earlier, the first contraction on record.
Susquehanna Financial Group downgraded its view on Samsung’s stock to neutral from positive in January, saying it sees "no clear strategy with the mobile business unit" despite intensifying competition, while noting that memory-chip fundamentals continue to deteriorate. “We prefer to move to the sidelines until a positive catalyst emerges,” analysts led by Mehdi Hosseini wrote in the report.
Still, Samsung bulls far outnumber bears. The stock has a total of 37 analyst buy ratings, four holds and one sell, according to data compiled by Bloomberg. Haitong International Securities continues to be the sole brokerage that recommends offloading the shares.
"The positive chip cycle has shown a tendency to end following a two-year run," Doh Hyun-woo, a Seoul-based analyst with NH Investment & Securities Co. with a buy rating on the stock, said in an interview. "That’s why some people have opted to cut the rating. But the supply and demand for chips is still good.”
Samsung’s heir apparent and Vice Chairman Jay Y. Lee’s return as the leader of the company is another reason Doh remains optimistic. Lee walked free from prison in February after a South Korean appeals court suspended his sentence for bribery.
But for Duhra, it’s natural to have lower expectations for companies like Samsung as demand slows for hardware such as TVs, smartphones and displays, all of which are big businesses for the company.
"If you take the whole space, it was about 50 percent earnings growth in Asia last year," Duhra said. "That’s spectacular by any standard. Are we going to see another 50 percent move? I just don’t see that."
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