[Click eStock] SK Hynix Taking Steps Toward Valuation Normalization

Expecting Solid 4Q Performance... Full-Scale Entry into Next Year's DRAM Recovery Phase

[Asia Economy Reporter Minwoo Lee] An analysis suggests that SK Hynix's corporate value is regaining its footing. While it had been undervalued due to uncertainties in server demand, expectations of entering a recovery phase in the DRAM market are now driving forecasts of further price increases.

On the 16th, Cape Investment & Securities maintained a 'Buy' rating on SK Hynix and raised the target price by 39.1% to 160,000 KRW. The closing price the previous day was 117,500 KRW. Although the recent stock price rise has been steep, it is viewed as normalization rather than overheating, and further gains are considered quite possible as the DRAM market improves.

From the fourth quarter earnings, the company is expected to exceed market forecasts. Cape Investment & Securities projected sales of 7.492 trillion KRW and operating profit of 922 billion KRW. Compared to the same period last year, sales would increase by 8.1% and operating profit by 290.7%. The gap left by Huawei is being replaced by inventory demand from 'VOX' companies such as Vivo, Oppo, and Xiaomi. Server demand remains weak due to continued corporate customer purchasing restraint, and cloud customers have not fully resumed buying. However, some cloud customer orders have restarted, indicating an improvement in server demand compared to the previous quarter.

The DRAM segment is also expected to perform well. Seongsun Park, a researcher at Cape Investment & Securities, explained, "DRAM bit supply will increase by 8% quarter-on-quarter, and NAND by 4%, exceeding expectations." He added, "The average selling price (ASP) will decline by 7% for DRAM and 8% for NAND compared to the previous quarter, but the rate of decline will slow." However, he noted that the strong won-to-dollar exchange rate could negatively impact earnings.

The DRAM market is anticipated to enter a full recovery phase starting from the first quarter of next year. Due to robust PC demand and stronger-than-expected mobile demand from VOX, supplier inventories remain low. On the other hand, recent power outages at Micron Technology's Taiwan plant in the U.S. have raised concerns about supply disruptions. Since this plant has a high proportion of server products, server customers are expected to quickly accumulate inventory. Researcher Park stated, "In the short term, purchasing sentiment will be more stimulated than the actual scale of supply disruption." He forecasted, "Negotiating power has shifted back to suppliers, and DRAM prices are expected to rebound in the first quarter of next year."

Cape Investment & Securities expects DRAM demand growth of 20% next year, while supply is estimated to increase by the mid-teens percentage. For NAND, even with reduced new investment capacity, acquiring Intel's NAND business segment and converting up to 30% of 2D NAND investment is expected to meet demand. However, due to aggressive production facility investments by competitors, a price reversal in NAND is unlikely within next year.

This content was produced with the assistance of AI translation services.