The long-term earnings outlook for the seven key stocks driving the domestic market, known as S7, is projected to reach record highs, while target prices in the securities industry are showing extreme divergence. This situation reflects both optimism that these stocks will boost the KOSPI index, similar to the U.S. market's Magnificent 7 (M7), and concerns over short-term market conditions and governance uncertainties, which could lead to increased volatility in stock prices.
According to financial information provider FnGuide on August 14, the consensus for the annual operating profit of the S7 companies (Samsung Electronics, SK Hynix, SK Square, Samsung Electro-Mechanics, Samsung Life Insurance, Samsung C&T, and Samsung Electronics Preferred) for 2027 is estimated at 1,024.2 trillion won.
Individually, Samsung Electronics is expected to generate an operating profit of 544.7 trillion won, while SK Hynix is projected to earn 391.8 trillion won. Other companies in the group, such as SK Square (54.7 trillion won), Samsung Life Insurance (5.5 trillion won), Samsung C&T (4.4 trillion won), and Samsung Electro-Mechanics (3.7 trillion won), follow behind.
The combined operating profit of these companies is expected to continue its upward trend, reaching approximately 1,048.3 trillion won in 2028. In that year, Samsung Electronics is anticipated to become the first company to surpass 1,000 trillion won in sales, with SK Hynix also expected to exceed 540 trillion won in revenue.
The anticipated surge in profits is attributed to the prolonged cycle of AI semiconductor demand, alongside expected benefits from governance restructuring and increased shareholder returns for SK Square and Samsung C&T, as well as rising demand for components for AI servers from Samsung Electro-Mechanics.
Despite the astronomical earnings forecasts, the disparity in target prices set by securities firms is unusually large. Based on earnings estimates, the projected price-to-earnings ratio (PER) for 2028 shows that most key stocks, including Samsung Electronics (3.99 times) and SK Hynix (3.54 times), have entered extreme undervaluation territory, yet differing views on the sustainability of future profits remain unresolved.
In the past month, target prices set by securities firms for Samsung Electronics range from 350,000 to 650,000 won, with the highest price being 1.9 times the lowest. For SK Hynix, the range is from 1,480,000 to 4,700,000 won, with a gap of 3.2 times between the highest and lowest estimates.
This divergence in expectations has become more pronounced as major securities firms have adjusted their target prices this month. Kiwoom Securities lowered its target prices for Samsung Electronics (350,000 won) and SK Hynix (2,100,000 won) on August 10, reflecting concerns over a peak-out in AI memory demand.
The downward adjustment of semiconductor stock target prices is cascading through affiliated companies due to interconnected shareholding structures. NH Investment & Securities lowered its target price for Samsung Life Insurance from 450,000 won to 390,000 won on August 14.
Jung Jun-seop, a researcher at NH Investment & Securities, noted, "While the value fluctuations in the financial sector are not significant, the decline in Samsung Electronics' stock price has led to a decrease in the non-financial equity value from 56.6 trillion won to 47.1 trillion won. This reflects a structure where the stock price of Samsung Electronics directly impacts the corporate value of Samsung Life Insurance." Other firms, including LS Securities, Hanwha Investment & Securities, and Samsung Securities, have also lowered their target prices for Samsung Life Insurance.
Conversely, there are also views advocating for higher target prices based on long-term shareholder return policies. Hana Securities raised its target price for Samsung Life Insurance from 302,000 won to 370,000 won on the same day. Go Yeon-soo, a researcher at Hana Securities, stated, "If Samsung Electronics allocates resources for special dividends, the dividend per share (DPS) could increase to around 12,000 won by 2027. We should pay attention to the growth of new contract CSM based on overwhelming competitive advantages in exclusive channels." Kyobo Securities also raised its target price to 380,000 won.
The significant differences in calculations among securities firms are attributed to several factors: concerns over a slight stagnation (-0.15%) in semiconductor growth in 2028 versus the view of a prolonged AI supercycle, differences in performance linkage among financial and component affiliates due to interest rate changes, and varying speeds of reflecting governance restructuring and share buyback policies.
In the financial investment industry, there are warnings that the absolute market capitalization and profit share of S7 within the KOSPI could amplify overall market volatility due to these differing calculations. A representative from an asset management firm remarked, "While S7 is a key driver for the KOSPI, the extreme divergence in target prices among securities firms indicates that future stock price volatility could be maximized. It is essential to be cautious of short-term capital flow volatility, regardless of long-term profit resilience."
* This article has been translated by AI.
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