Nomura Lifts SK Hynix Target to 4 Million Won, Samsung to 590,000 Won After May 15 Rout

Nomura sets 4 million won target for SK Hynix

Price targets raised sharply after May 15 selloff

Nomura says P/E, not P/B, should be the benchmark

Nomura Securities has raised its price targets for Samsung Electronics Co. and SK Hynix Inc. to 590,000 won and 4 million won, respectively, drawing attention after the two stocks tumbled on May 15.

According to the financial investment industry on May 17, Nomura lifted its target for Samsung to 590,000 won from 340,000 won and for SK Hynix to 4 million won from 2.34 million won. That implies upside of more than 118% for both stocks from current levels.

Nomura raised its targets sharply because it believes Samsung and SK Hynix should now be valued as structural growth companies rather than cyclical stocks.

Samsung and SK Hynix are trading at about six times forward earnings, the brokerage wrote, adding that they should command valuations in line with Taiwan Semiconductor Manufacturing Co.

Most securities firms calculate target prices for Samsung and SK Hynix using the price-to-book ratio, or P/B, method. A price-to-earnings, or P/E, approach generally requires an industry with structurally stable earnings. The memory chip business, by contrast, has long cycled between profit and loss, making P/B the preferred yardstick.

P/B values a company based on net assets. For example, if a company has net assets of 10 billion won and a five-times multiple is applied, its corporate value would be 50 billion won. If it has 1 million shares outstanding, the target price would be 50,000 won. The P/E method values a company by applying a multiple to net profit. If a company is forecast to earn 1 trillion won and a 10-times multiple is used, its corporate value would be 10 trillion won.

Nomura said memory demand could increase by several thousandfold over the next five years, while supply growth may be limited to five to six times. It also said contract risk has fallen sharply because a large share of current memory supply agreements are structured as long-term agreements, or LTAs, lasting three to five years.

The brokerage also cited expanding data-center investment as a key driver of a jump in memory demand, reinforcing its bullish view on the two companies.

By Nomura's estimates, Samsung's operating profit will rise from 307 trillion won this year to 511 trillion won by 2028. It added that profitability improvement in the foundry business remains limited.

Nomura projects SK Hynix's 2028 operating profit at 480 trillion won. The brokerage said the company stands to benefit more directly from rising AI memory demand because of its lead in the high-bandwidth memory, or HBM, market.

The report is also focusing attention on how the two stocks will trade on May 18.

US stocks ended lower on the final trading day of last week as profit-taking hit technology shares amid concern that high oil prices would stoke inflation and push interest rates higher. Nvidia fell 4.42%, Micron Technology dropped 6.69% and Intel slid 6.18%. The Philadelphia Semiconductor Index also fell more than 4%.

Noh Jung-dong, Hankyung.com reporter dong2@hankyung.com