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Investing.com -- Korean memory giants Samsung Electronics (KS:005930) and SK Hynix (NASDAQ:SKHY) (KS:000660) are "extremely undervalued," KB Securities analyst Jeff Kim says, after both stocks plunged more than 40% from their previous peaks due to forced unwinding of excessive credit-leveraged positions.
Based on the Wednesday close, Samsung Electronics trades at 3.7x the 2027 estimated price-to-earnings (P/E) and SK hynix at 3.2x. Analysts forecast 2027 operating profit for Samsung and SK Hynix at 575 trillion won and 389 trillion won, respectively — 13.2x and 8.2x their 2025 levels.
The gap between projected earnings growth and current valuations suggests "earnings improvements expected in 2027 have barely been priced in," pointing to "substantial room for re-rating," Kim wrote.
Near-term earnings are also expected to inflect sharply. Samsung Electronics is projected to post third-quarter 2026 operating profit of 112 trillion won, up 817% year-over-year with a 55% operating margin, marking a record high for the fourth consecutive quarter since 20 trillion won in the fourth quarter of 2025.
Similarly, SK Hynix is expected to post third-quarter operating profit of 77 trillion won, up 579% year-over-year, with a 78% operating margin. The growth is attributed to both companies committing more than 60% of their output to five-year long-term agreements with hyperscalers amid rising memory prices.
Looking further out, the combined operating profit of Samsung Electronics and SK Hynix is projected to rise from 91 trillion won in 2025 to 641 trillion won in 2026 — 382 trillion won for Samsung and 259 trillion won for SK hynix — and to roughly 964 trillion won in 2027, split 575 trillion won and 389 trillion won, respectively.
Against that backdrop, their combined market capitalization stands at approximately 2,593 trillion won, which Kim said points to meaningful re-rating potential as earnings scale.
Shareholder returns were also flagged as a catalyst. Kim said upcoming shareholder return policies at both companies "should drive valuation re-rating and share price rally," drawing a comparison to the pattern seen with TSMC.
Samsung Electronics’ shareholder returns over the next three years are expected to total at least 600 trillion won, with a dividend yield above 7%, a level the analyst believes "could serve as a powerful catalyst for inflows from global mega-funds," strengthening the stocks’ long-term trading dynamics.
"We continue to favor SEC and SKH as our top picks," Kim concluded.
