Morgan Stanley: Maximum impact of Samsung's strike on profits up to 35 trillion won, buy on dips logic remains unchanged

Morgan Stanley's Jay Kwon team pointed out in a research report on May 13th that if Samsung's large-scale strike lands as scheduled, it will have an impact of 2.1 to 3.5 trillion won on the operating profit in 2026, with semiconductor department revenue affected by about 1% to 2%. Despite this, Morgan Stanley maintains its "overweight" rating for Samsung Electronics and clearly states that "for any share price pullback caused by the strike, we continue to advise buying on dips".

The strike situation has approached a critical point. The labor-capital mediation led by the South Korean government declared a breakdown this week, and the National Samsung Electronics Labor Union immediately announced that there will be a full-scale strike from May 21st to June 7th, lasting for 18 days, with about 50,000 union members expected to participate, exceeding the approximately 40,000 at the Pyeongtaek chip park rehearsal on April 23rd. The core divergence between the labor and capital sides is focused on canceling the upper limit of operational profit incentives and institutionalizing the profit-sharing mechanism.

In terms of financial calculation, if Samsung accepts the union's demands, uses 10% to 15% of operating profits for incentives, and raises the basic salary by 5%, the labor cost in 2026 will increase by 1.69 to 3.04 trillion won compared to previous estimates. Coupled with the loss of sales opportunities of about 4.5 trillion won, the overall risk to operating profit is 3% to 7%. If the impact worsens further, the loss of revenue opportunities could reach about 9 trillion won.

However, the strong rise in memory prices is becoming the biggest hedging variable. The research report cited media reports that the second-quarter contract price quotes show DRAM's sequential increase of 58% to 63%, and NAND's sequential increase of 70% to 75%, both significantly higher than Morgan Stanley's previous expectation of 40% to 50%. Morgan Stanley points out that the higher quarterly profit base is enough to offset the pressure of labor costs, and the market may even price the strike as a positive catalyst for contract price negotiations in the second and third quarters.

Morgan Stanley's profit forecast for 2026 was already higher than the market consensus, with a forecast of 470.9 trillion won in revenue for the DS semiconductor department, higher than the consensus of 443.2 trillion won, and the forecast for the average price increase of DRAM is 260%, significantly higher than the consensus of 219%.

In terms of short-term uncertainty, Morgan Stanley admits that the strike may cause Samsung to lag behind its memory industry peers in the short term. Since April, Samsung's stock price has risen about 60%, while SK Hynix's increase during the same period has been as high as about 122%.

On the legal front, Samsung has applied to the court for an injunction against the union's possible illegal industrial actions, and the court's ruling before May 21st is the next key point. The Minister of Labor and Employment in South Korea can issue an "emergency mediation order" under statutory conditions, forcibly suspending the strike for 30 days, but this measure has only been used four times in the past 57 years.

Morgan Stanley's mid to long-term logic remains unchanged, with the core support being the "higher, longer" memory upturn cycle, coupled with the continuous improvement of HBM execution capabilities. The existing target price is based on a forecast of a price-to-book ratio of 2.2 times for the years 2026 to 2027, a 10% premium over the valuation during historical peak cycles.