SK hynix headquarters in Icheon, Gyeonggi Province. Yonhap News
Hanwha Investment & Securities maintained its “buy” rating on SK hynix (000660.KS) and sharply raised its target price to 4.3 million won from 1.63 million won. The brokerage cited the view that earnings volatility, long considered a weakness of the memory sector, has significantly declined due to the expansion of its high-bandwidth memory (HBM) business and the increase in long-term agreements (LTA).
In a report released Wednesday, Hanwha Investment & Securities said, “SK hynix is no longer a company with extreme profit volatility but is transforming into a company capable of consistently generating high levels of profit,” adding that “it is time for the company to receive a fair valuation compared to global tech firms.”
In calculating its target price, Hanwha Investment & Securities applied a price-to-earnings ratio (PER) of 10 times, the minimum level among global semiconductor companies. SK hynix’s 12-month forward PER currently stands at about 6.6 times, which the brokerage said is a lower valuation than global semiconductor companies, including fellow memory maker Micron.
In particular, the expansion of long-term supply contracts was cited as a key factor in enhancing future earnings stability. According to the analysis, the LTAs currently being signed include mechanisms to defend against price declines and legal provisions to ensure faithful performance of contracts, allowing the company to maintain profitability above a certain level even if the memory market slows. Hanwha Investment & Securities forecast, “In past periods of declining profits, the operating margin fell below 10% or even recorded losses, but going forward, an operating margin of at least 30% will be guaranteed.”
The increasing share of HBM was also viewed positively. Hanwha Investment & Securities estimated that HBM currently accounts for around 20% of SK hynix’s operating profit. It expects HBM, which has lower price volatility and higher profitability than general-purpose memory, to play a role in enhancing the sustainability of profits.
The push for a U.S. stock market listing through American depositary receipts (ADRs) was also presented as an additional factor for re-evaluation. The report said, “With an ADR listing within the year, the opportunity to be compared and evaluated against similar companies in the U.S. stock market is approaching,” adding that “SK hynix is judged to be the top investment pick in terms of both fundamentals and momentum.”
