Estimation of Samsung stock fair value

Bc. Tetyana Yarchak

Master's thesis

Abstract:

The diploma thesis “Estimation of Samsung stock fair value” focuses on fundamental economic analysis through looking at chosen Korean company Samsung Electronics Co., Ltd. The thesis is divided into two main parts: theoretical part together with literature review and the practical part of results and discussions.The first part of diploma thesis is connected with the theoretical ground of analyzing the Korean stock market, stock analysis and methods of developing the theory of fundamental economic analysis. There are described types of stocks and their difference, as well there represent various types of models that are used to investigate the intrinsic value of Samsung stock. In the practical part, there were used future stock valuation models such as dividend discount model, price to earnings multiples, discounted cash flow, etc. The analyzing of selected fair value models was done in order to determine if a company is overvalued or undervalued. The economic situation of the company will be represented as well. Subsequently, part of calculations focuses on the evaluation of financial statement of company Samsung.The results of the analysis are used to predict the economic position of a company in a future year, as well as predict future share price and dividends. To determine if a company is profitable and financially stable and identify recommendations for potential investors whether they should invest or not into Samsung stocks.KeywordsSamsung, fundamental economic analysis, stock, financial position, fair value, dividend discount model, discounted cash flow model, price to earnings multiples, earnings per share approach, PEG ratio, overvalued, undervalued, investment recommendations.2.Objectives and aimsThe main objective of the diploma thesis is to evaluate the efficiency of the financial and economic activity of Samsung, as well as to characterize its properties and to determine the financial position in the current market, especially for the stocks of a company. The purpose is to appraise financials of Samsung such as profitability, price to earnings multiple, earnings per share, price/earnings growth ration, book value etc. Use an appropriate method that is the most suitable for determining the fair value of a company. Define main competitors and compare its stocks, also to determine if a stock is overvalued or undervalued. A partial goal is to estimate the market share of a company on the global market of smartphones, further to analyze past data in order to forecast the future price changes of Samsung stock and to use it for future prediction.3.MethodologyAll information about Samsung is received from the annual financial statements available on the website of the company. The information for the fundamental economic analysis and technical analysis are gathered from the literature sources available in the online library and other sources.A literature review is conducted using methods of induction and deduction also synthesis and extraction. The analytical section will be made using methods of qualitative, analysis and quantitative as well, also mathematical and economic analysis will be used. Method of comparison will be used in order to compare company Samsung with its main competitors in the same industry – Apple, Huawei, Oppo, Vivo, etc. For stock valuation, there were used different models, that were determining if a company is overpriced or underpriced. The main valuation models to determine the fair value of the company are: dividend discount model, includes itself constant-growth model and variable growth model, price to earnings multiples, capital asset pricing model, earnings per share approach, peg ratio, discounted cash flow model and book value. The data were calculated by different formulas for each specific model. Data of stocks for calculations are obtained mostly from an internet source: yahoo finance, Bloomberg, Morningstar, MarketWatch, etc. A time period for technical analysis w

Abstract:

as chosen January 2000 – January 2017 and for fundamental analysis was used data of annual company reports of fiscal years 2000 – 2017 as well. There was done expectation of dividends and share price. The prediction of future value was done for next three years, for 2018, 2019 and 2020. All graphs, tables, figures were made by own computation in software Microsoft Office Excel 2016. Afterwards, by gathering all the information and analyzing results there was done final conclusion, prediction of future position and the decision whether invest in a company or not, using a method of brainstorming.4.Conclusion and investment recommendationFrom the foundation of Samsung in 1969 in the city of Suwon, the company has become the world leader in the technology of information, controlling more than 200 affiliated companies in the world. More than a decade ago, the corporation was not perceived seriously as the rival of other corporations in the industry. Nowadays, Samsung Electronics is corporation that has a multinational innovation technology, and it became the most powerful company in its sector and as well one of the most profitable companies in the world. In 2015-2016, it keeps up to date and actively develops virtual reality and tries to introduce the latest innovative technology. Now the offices of the company are located in more than 60 countries of the world. Samsung has manufacturing facilities in Portugal, Mexico, Hungary, China and Thailand, and the South Korean city of Suwon, where the company's headquarters is located, has long been called the "Samsung City" informally.The company is a paragon of financial stability. After the launch of Samsung Galaxy S7 and Galaxy S7 Edge smartphone bestsellers, the company earned $ 4.56 billion in January through March 2016, up 13% from a year earlier, with a turnover of about $ 254 billion. By 2020, Samsung is striving to achieve an annual sales turnover of $ 400 billion, while ensuring Samsung Electronics ranked among the top five global leaders in terms of the total brand value. In addition to its direct activities, in our time the Korean company Samsung is making considerable efforts to change and improve the world, protecting the environment, supporting culture and sports, as well as developing social programs. Today, it's pretty hard to find an area where Samsung's brand would not meet, and it seems that this is just the beginning.Samsung is registered on the Korean Stock Exchange, where its stock has been grown by 24% during last year. At the same time Apple stock has lost 19% of the cost. However, many other international companies registered in their countries, Samsung does not belong to any of the US stock exchanges. Samsung allocates revenues to Apple. It has 221,000 heads, and more than three times employees. It acts on a lot of different markets and even more then Apple does. Moreover, company Samsung as well makes a lot of different electronic devices, home instruments, TVs, stereo equipment, chips for computer, video-cameras. It's already huge in China as well. This makes a record profit - in 2016, the third quarter earnings Samsung grew by 91% to $ 5.9 billion.The main objective of this thesis was to evaluate the efficiency of the financial and economic activity of Samsung Co., Ltd, which was provided. By economic analysis, it is clearly understood that Samsung Corporation occupies an important position in comparing with relative companies. These days it is proved that Samsung Co. Ltd. is a popular company among its competitors, by producing a big variety of different kinds of products with new designs and its innovations. Thus, it leads to huge amount of customers and high profit. Another aim was to evaluate market share of the company on the global market of smartphones, further to analyze past data in order to forecast the future price changes of Samsung stock and to use it for future prediction, which was done as well. Afterward to estimate if company undervalued overvalued and based on that were provided recommendations whether to invest in a company or not. According to the results of an economic analysis, it was determined that revenue of the company has increased over the last six years by 36,888,745 KRW and became 201,866,745 in the year 2016. As well the company has expanded in the market of smartphones and took the first position on the selling of phones in the year 2017 within 20% of the world market share. From 2016, sales increased by 3.1 %, and the company sold 78,671.4 smartphones in this year. There was done analyzing of historical data in order to make a future prediction, based on that the share price of Samsung has been increased over the years by 1,298,00 KRW, over the last six years and there was done prediction by the model, that it is going to grow in 2018 as well. The expectation is that it will grow by 145,965.41 KRW at a minimum, which is a good sign for potential investors to buy shares, in case if the stock price is going to grow next year. There was analyzed past data of dividends for last 18 years. The results are impressive because from the year 2000 till 2017 dividends grew from 500 KRW to 27,500 KRW, which is 55 times more. This is a very good result for shareholders of course, because if the stockholder bought shares 18 years ago, now shareholder could get/sell it by 55 times more and higher. By the discounted free cash flow model – the company is undervalued, because the current share price is 2,820,000 KRW and share price calculated by the model is 4,491,829.67 KRW. As final, it can be concluded that all these investigations that were provided by analyzing and using different stock valuation models proved that company Samsung is worth to invest in.5.Literature[1] GITMAN, L.J., (2006). Principles of Managerial Finance. 11th ed. United States of America: Pearson Education, Inc. ISBN 0-321-31150-7[2] Graham, B. and Zweig, J. (2003). The intelligent investor. New York: HarperBusiness Essentials [u.a.]., ISBN-10: 0060555661[3] Graham, B., Dodd, D. and Buffett, W. (2009). Security analysis. 6th ed. New York: McGraw-Hill., ISBN-10: 0071592539[4] Shim, J. (2012). Time value of money and fair value accounting. Kent: Global Professional Publishing Ltd., ISBN-10: 1906403767[5] Zyla, M. (2012). Fair value measurements. Hoboken, N.J: Wiley., ISBN: 978-1-118-22907-1

Keywords

Samsung, fundamental economic analysis, stock, financial position, fair value, dividend discount model, discounted cash flow model, price to earnings multiples, earnings per share approach, PEG ratio, overvalued, undervalued, investment recommendations

Language used: English

Date on which the thesis was submitted / produced: 28. 3. 2018

Thesis defence

• Supervisor: Ing. Petr Procházka, MSc Ph.D.

Czech University of Life Sciences Prague

Faculty of Economics and Management

Master programme / field:
Economics and Management / Economics and Management