SK Hynix Target Price Raised to $3,110 on LTA, HBM, ADR Prospects
Summary
- Hanwha Investment & Securities said SK Hynix is becoming a company capable of generating consistently high profit, setting a target price of $3,110 and maintaining a buy rating.
- The brokerage said SK Hynix can use LTAs to put a floor under memory prices and preserve high margins and earnings durability even during downcycles.
- It also said SK Hynix has a growing chance of a re-rating through a larger HBM contribution and an ADR listing this year, supported by a stable pricing trend and compelling valuation appeal.
Forecast Trend Report by Period
Hanwha Investment & Securities on June 22 raised its target price on SK Hynix Inc. to 4.3 million won ($3,110) from 1.63 million won, saying the chipmaker is shifting away from extreme earnings volatility toward consistently high profitability. The brokerage maintained its buy rating.
Park Jun-young, an analyst at Hanwha Investment & Securities, wrote that Korean memory makers have long traded at lower price-to-earnings multiples than global semiconductor peers because profits dropped sharply during downturns, fueling earnings volatility. He said the industry is now addressing that weakness with two powerful tools: long-term supply agreements, or LTAs, and high-bandwidth memory, or HBM.
SK Hynix is actively signing LTAs, Park wrote, and the agreements under negotiation include measures to put a floor under memory prices as well as legal protections to ensure faithful contract performance. The share of LTAs is rising quickly, which he said should preserve margins at much higher levels than in past downturns even during periods of falling earnings.
HBM currently accounts for about 20% of SK Hynix's operating profit, by Park's estimate, and that share is set to rise over the medium to long term. He added that HBM has shown a far more stable pricing trend than commodity memory and is projected to surpass commodity memory profitability again next year, making it an important support for earnings durability.
Alongside LTAs and HBM, an American depositary receipt, or ADR, listing is also strengthening the case for a re-rating. SK Hynix is aiming for an ADR listing this year, Park wrote, which would give the company a chance to be valued against comparable US-listed peers. Given its compelling valuation and technological edge over competitors, he said, the ADR could offer an ideal opportunity for another reappraisal.
Lee Su, Hankyung.com reporter 2su@hankyung.com
Korea Economic Daily
hankyung@bloomingbit.ioThe Korea Economic Daily Global is a digital media where latest news on Korean companies, industries, and financial markets.
