Samsung Electronics shares are picking up momentum this month amid a bullish outlook for the firm's fourth-quarter earnings, largely due to its recovering mobile device business and improved semiconductor market sentiment.
Its share price has continued to grow since mid-November, setting a record high on Dec. 8 to close at 1.79 million won ($1,510). The improving stock value is attributable to rosy expectations for its earnings report for the October-December period, analysts said.
"The company's semiconductor business is expected to report some 4 trillion won in operating profit in the last quarter, as prices for DRAM and NAND flash chips are on the rise," Lee Soon-hak, an analyst at Hanwha Investment & Securities, said in a report to clients.
Samsung Electronics was the largest vendor in the global NAND flash market in terms of sales in the third quarter, according to U.S.-based semiconductor market researcher DRAMeXchange, which added that shares in the Seoul-based technology titan are expected to expand in the fourth quarter, backed by strong demand from Chinese smartphone manufacturers.
The firm's smartphone business is also on the path to a stable recovery following the recent Galaxy Note 7 fiasco.
"Despite the sales and production termination of the Note 7, demand for the Galaxy S7 and S7 Edge has inched up," the analyst said. "The firm's IT and mobile communications (IM) division is expected to post an operating profit of 2 trillion won in the fourth quarter, offsetting the recent Note 7 debacle."
The IM unit posted 100 billion won in operating profit in the third-quarter regulatory filing, while dealing with the aftermath of the worldwide recall of the ill-fated Note 7 devices following reports of the premium handset catching fire while charging.
In its desperate bid to minimize the impact, the firm then pushed for aggressive marketing of the S7 and S7 Edge by offering new colors ― coral blue and black pearl. According to local market researcher Atlas Research, the S7 became the top-selling device in the local market in mid-November, stealing the spotlight from the iPhone 7.
"We cannot say for sure whether the upcoming S8 handset will debut successfully, as no specific causes have been confirmed surrounding reported fires from the Note 7," the analyst said. "But the company's semiconductor and display business is steeply increasing its revenues. For this reason, the firm's earnings will remain stable until the first half of next year."
Governance restructuring stabilizing stock value
Late last month, the company unveiled its updated governance policy to allocate 50 percent of free cash flow in 2016 and 2017 to shareholders.
"The announcement boded well for its share prices," the analyst said. "The company is expected to pay some 4 trillion won in dividends this year."
The company also hinted at the possibility of becoming a holding company, a move to win more investor confidence by improving its valuation and the transparency of the current ownership structure.
Samsung Electronics CFO Lee Sang-hoon told investors recently it would take six months to review the plan. No specific timeline has been confirmed.
Eugene Investment & Securities on Monday revised up the firm's target stock price to 2.1 million won over expectations for its possible transition into a holding firm. Lee Jeong, a Eugene analyst, said in a report: "Samsung Electronics shares have surged by a huge margin, increasing by 6.5 percent last month, due to the new shareholder return policy and bright earnings outlook in the fourth quarter."
The potential corporate governance restructuring and dividend expansion offer a promising outlook for the firm, according to the analyst.