Samsung Electronics: Unsung Hero of the Samsung Empore

Notes from the Value Investing Congress

By Travis Johnson, Stock Gumshoe, September 9, 2014

This is a presentation from Mike Wood, winner of the SumZero contest for young investment analysts. He works for

Samsung is not well understood, mistaken as a smartphone company — the semiconductor business is worth more than the company’s enterprise value.

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They have 13 products with #1 market share.

People don’t believe that that this low cost manufacturer can be a leader in development and design.

20% free cash flow yield. Net cash is expected to compound at 24%, much more if you include their equity investments in other compnaies.

The PE is 6-7, but they also own a lot of their own stock so that’s deflated.

Downside risk/bear view:

Downside sentiment is momentum driven.
Samsung is dependent on the success of their next product
Chinese competitors will drive margins to zero
they’re a copycat and not innovative
and will never return capital about shareholders.

He thinks these are all myths.

Samsung is very diversified — Smartphones are 40% including both high and low end. Apple is much more concentrated.

Smartphone industry is not saturated — Internet of Things growth is the next wave. Predictions are that mobile subscriptions will compound at 16% growth globally, that’s a lot of phones.

If you put a zero value on their mobile business, including smartphones, tablets, wearables and PCs, you can still get 30% upside just from the rest of the businesses.

They are not a copycat, that’s a myth — they have the largest patent portfolio outside of IBM.

Preserving capital became the priority of the company in 2008 as they planned for family succession, but before that they returned about 50% of cash to shareholders. They’re in the late stages of restructuring and have announced IPOs.

Sum of the parts gives equity value of $443 billion (149% upside) — that’s a wide margin of safety.

Semiconductor business will get $11.4 billion in operating profit in 2014 — he thinks that’s worth at least as much as Micron or Sandisk because market share is bigger (those are valued around 10X operating profit)

Consolidation in the space after the DRAM business bottomed in 2012 compared to Micron, which has flown, and Hynix, which he also thinks is undervalued. They trade at half the valuation of Intel, Qualcomm, Micron despite consistently taking market share.

Samsung Display will earn $3.3 billion ...

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