Daol Securities Sees SK Hynix 4Q Operating Profit at $7.2 Billion, Expects Share Rebound

Daol Securities said SK Hynix is poised to recoup part of its recent share-price decline, backed by strong earnings and expanded shareholder returns. It forecast fourth-quarter operating profit would top $7.2 billion for the first time.

In a report dated October 29, Daol Securities analyst Nam Dae-jong estimated SK Hynix's fourth-quarter revenue at $9.3 billion and operating profit at $7.2 billion. That is well above market forecasts of $8.0 billion in revenue and $6.3 billion in operating profit. Nam said a mid-20% increase in DRAM shipments from the previous quarter would drive the earnings growth.

The company also delivered third-quarter results above market expectations. Revenue rose 32% from the previous quarter to $7.5 billion, while operating profit increased 38% to $6.0 billion. Despite a decline in the won-dollar exchange rate, average selling prices for both DRAM and NAND rose by the mid- to high-20% range from the prior quarter, supporting earnings. Daol Securities projects full-year operating profit of $20.4 billion this year and $33.7 billion next year.

Expanded shareholder returns were also cited as a positive for the stock. Nam wrote that employee bonuses and shareholder returns this year would total about $723 million. Based on the company's comments, he expects cash dividends tied to gains from its Kioxia investment to amount to $506 million in the third quarter and at least $651 million in the fourth quarter.

Nam said the recent share-price correction appeared excessive relative to earnings. Based on projected results for next year, the stock is trading at 2.4 times forward price-to-earnings and 1.7 times price-to-book.

"The recent correction already fully reflects the 50% to 60% decline in average selling prices seen during past downturns in the memory semiconductor market," Nam wrote. "As solid memory demand is reflected in the market, the stock should recover part of its decline."