Citi: Samsung's Q3 operating profit exceeds expectations, semiconductor business shows strong recovery momentum

Samsung Electronics’ third quarter results far exceeded expectations, with a strong recovery in the memory chip business as the core driving force. Citi maintains its “Buy” rating and remains optimistic about the company’s medium- and long-term outlook.

Samsung Electronics announced preliminary operating profit for the third quarter of 2026 at 107.4 trillion KRW, marking a 20% quarter-on-quarter increase and a massive 782% year-on-year surge. According to Chasewind Trading Desk, Citi analysts Peter Lee and Jayden Oh pointed out in their research report that this performance exceeded market expectations. Despite facing adverse exchange rate factors and an extra bonus payout of around 10 trillion KRW this quarter, the robust profitability of the memory chip business was sufficient to offset these negative impacts.

Citi has maintained its “Buy” rating on Samsung Electronics, with a 12-month target price of 430,000 KRW. This implies about 60% upside compared to the October 7 closing price of 268,500 KRW. Combined with a projected dividend yield of 3.7%, the total expected return reaches 63.8%.

Citi expects Samsung’s third quarter operating profits across business units to be heavily concentrated in semiconductors. The semiconductor division’s operating profit is forecast to reach 107.0 trillion KRW, up significantly from 89.2 trillion KRW in the second quarter, making it the absolute pillar of overall results.

Other departments showed a clear divergence. The display panel division is expected to contribute 1.1 trillion KRW in operating profit, with the Harman division adding around 0.5 trillion KRW. Both the mobile and consumer electronics divisions recorded operating losses of about 0.6 trillion KRW each.

It is worth noting that while the mobile segment’s loss narrowed slightly compared to the previous quarter, smartphone shipments declined 9% quarter-on-quarter to 58 million units in the third quarter. Weak sales of mid- and low-end products partly offset the improvement seen in high-end product sales.

Citi pointed out that Samsung will hold its Q3 earnings call on October 29, where the market will focus on three major topics.

First, the latest outlook for global memory chip supply and demand in 2027; second, the progress of long-term supply agreements (LTA) for memory chips; and third, further details on shareholder return policies. These pieces of information will directly impact the market’s evaluation of Samsung’s future profitability trajectory and capital allocation direction.

Looking toward 2027, Citi believes Samsung possesses significant structural advantages amid the AI-driven surge in memory demand. Leveraging its leading DRAM and NAND production capacity, Samsung is expected to continue benefiting from rising demand for server DRAM and enterprise-class SSDs (eSSD).

Regarding high-bandwidth memory (HBM) pricing, Citi anticipates the average price per GB for HBM4 12hi to climb sharply from about $2 in 2026 to the $4-5 range in 2027, a year-on-year increase of 100% to 150%. HBM4 8hi pricing is expected to enjoy a 20% to 30% premium over 12hi. Citi believes this pricing trend will deliver substantial average selling price (ASP) improvements and margin expansion opportunities for Samsung.