SK Hynix Target Cut to 2.8 Million Won From 4.2 Million as South Korean Brokerages Turn Cautious

South Korean brokerages that had been issuing rosy forecasts are abruptly turning cautious, cutting target prices across the board

580 target-price downgrade reports in July versus 351 upgrades

First month this year in which downgrades outnumbered upgrades

A sharp shift from June, when the Kospi rose above 9,000

The number of target-price downgrade reports issued by South Korean brokerages exceeded upgrades in July for the first time this year, underscoring a sharp shift in market sentiment. The change came as a semiconductor-led stock rally lost steam and bellwethers including Samsung Electronics and SK Hynix plunged.

According to financial data provider FnGuide on Aug. 3, domestic brokerages published 580 target-price downgrade reports in July. That was far more than the 351 upgrade reports issued during the same period. It marked the first month this year in which downgrades outnumbered upgrades.

At the start of the year, expectations for a semiconductor-driven rise in South Korean equities fueled a surge in target-price upgrades. In January, brokerages issued 940 upgrade reports, more than four times the 228 downgrades. In February, when the Kospi first climbed above 5,000 and bullish sentiment peaked, upgrades totaled 1,122 while downgrades stood at 116.

Upgrade reports continued to outnumber downgrades from March through June. In June, when the Kospi broke above 9,000, there were 289 upgrades, or 2.2 times the 131 downgrades. That trend reversed in July.

Brokerages cited rising market volatility and the lack of a clear leadership sector as key reasons for the increase in target-price cuts. Target prices are typically raised when earnings are expected to improve and corporate value to rise. They are lowered when profit estimates decline or valuation burdens increase.

A reset in expectations for Samsung Electronics and SK Hynix has been at the center of the volatility. The two companies posted record-level second-quarter earnings, but their shares tumbled as much as 31.17% and 39.20% from their peaks in July, respectively. On Aug. 3, Samsung Electronics closed at 239,500 won, down 8.76% from the previous session, while SK Hynix ended at 1.567 million won, down 8.79%.

Mirae Asset Securities cut its target price for Samsung Electronics by 32.7% in July, lowering it to 370,000 won from 550,000 won. Kiwoom Securities also reduced its Samsung Electronics target that month to 390,000 won from 430,000 won. SK Hynix was hit by a similar wave of cuts.

BNK Investment & Securities lowered its target price for SK Hynix to 1.48 million won from 1.85 million won, citing concerns about a semiconductor supply glut. Mirae Asset Securities also slashed its target to 2.8 million won from 4.2 million won. The moves indicate major brokerages are narrowing the gap between current share prices and their targets after the steep selloff.

The industry sees August as a potential turning point for investment sentiment in the second half. Market volatility could ease if domestic and external factors stabilize, including shifts in earnings consensus for global big tech companies, key US economic data, developments in the Middle East conflict, the direction of interest-rate policy and stabilization in the leveraged exchange-traded fund market.

If volatility subsides, brokerages may resume raising target prices for companies with solid earnings growth. Na Jung-hwan, an analyst at NH Investment & Securities, wrote that semiconductor companies' operating profit levels will continue to rise quarter by quarter through next year. In his view, share prices will eventually rebound on the level of earnings rather than the pace of growth.

A more cautious camp remains. That view holds that uncertainty surrounding the AI market must ease and meaningful profitability must be proven before stocks can mount a sustained rebound. Lee Kyung-min, an analyst at Daishin Securities, said the key variable for a recovery is whether concerns about a slowdown in AI investment begin to fade. If AI adoption is shown to deliver tangible profit improvement, it could become a powerful trigger for a market turnaround.

Kang Kyung-ju, Hankyung.com reporter qurasoha@hankyung.com