[Into the Stock] SK Hynix Riding the Semiconductor Supercycle

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Expectations for the semiconductor sector are rising as a semiconductor supercycle (period of booming growth) is anticipated this year. In particular, SK Hynix is drawing attention as it continues to reach new all-time highs despite the recent stagnation of the leading stock Samsung Electronics, with its peak prices rising and earnings forecasts and target prices being steadily upgraded.

According to the Korea Exchange on the 16th, SK Hynix has risen 15.19% so far this year. Earlier this month, it reached an intraday high of 150,500 KRW, marking a record high. After hitting this peak, it has taken a breather due to selling by foreigners and institutions but still shows better returns compared to Samsung Electronics. Samsung Electronics has only risen 0.99% this year.

Reflecting Expectations for Semiconductor Supercycle

Expectations for the semiconductor sector have grown since the beginning of the year as it is expected to enter a semiconductor supercycle this year. Global market research firm IC Insights recently raised its growth forecast for the semiconductor market this year from 12% to 19%, an increase of 7 percentage points compared to last year. IC Insights predicted that sales in the seasonally slow first quarter will grow 2% quarter-on-quarter, marking the first growth in 10 years since 2011. Market research firm IDC expects global semiconductor demand this year to increase by 19% for DRAM and 34% for NAND flash compared to the previous year. According to market research firm DRAMeXchange, the DRAM Exchange Index (DXI), a benchmark for the DRAM memory semiconductor market, reached an all-time high of 33,748.46 last month. The previous DXI record was 29,735.32 on January 2, 2018. The spot price of PC DRAM (DDR4 8Gb), which was around $2.77 at the end of last year, rose about 60% to $4.48 as of the 10th.

Since the COVID-19 pandemic, demand for semiconductor products has increased, but supply has not kept pace, leading to price increases. In particular, the growth of memory semiconductors such as DRAM and NAND flash, which are the main products of Korean semiconductor companies like Samsung Electronics and SK Hynix, is expected to be prominent.

Since semiconductor companies recorded high earnings growth during the previous semiconductor supercycle in 2018, earnings growth is also expected this time.

Accordingly, securities firms have recently been revising upward SK Hynix's earnings forecasts and target prices one after another. Shinhan Investment Corp. raised SK Hynix's operating profit forecasts for this year and 2022 to 12.2 trillion KRW and 21.3 trillion KRW, respectively, up 1.1% and 29.4%. The target price was also raised from 190,000 KRW to 200,000 KRW. Hanwha Investment & Securities revised SK Hynix's sales forecast for this year to 38 trillion KRW and operating profit to 10.7 trillion KRW, up 4% and 14% from previous forecasts, respectively. The target price was raised from 160,000 KRW to 180,000 KRW. NH Investment & Securities raised the target price from 170,000 KRW to 180,000 KRW and expects the NAND segment to turn profitable in the third quarter this year. Choi Doyeon, a researcher at Shinhan Investment Corp., said, "The earnings peak of this rising cycle is expected in the second quarter of 2022," adding, "Due to intensified supply constraints such as DDR5 transition and NAND double stacking, the annual operating profit in 2022 will exceed the peak of 2018."

Lee Sunhak, a researcher at Hanwha Investment & Securities, explained, "The DRAM market has shifted to supplier dominance, and the price increase speed is exceeding expectations, so earnings growth will proceed rapidly," adding, "NAND is also improving profitability due to cost reductions from stabilizing the yield of 128-layer technology, and a profitable turnaround in the NAND business is expected in the second half of the year."

SK Hynix Over Samsung Electronics

SK Hynix's recent stock price rise has outpaced Samsung Electronics, and securities firms are naming SK Hynix as the top preferred stock in the semiconductor sector. This is analyzed to be due to the impact of the Texas cold wave causing the suspension of operations at Samsung Electronics' Austin fab and the improvement in the NAND market. Kim Kyungmin, a researcher at Hana Financial Investment, said, "Samsung Electronics' operating profit in the first quarter of this year may be better than expected, but the unresolved issues related to system semiconductors such as the Texas cold wave remain a burden on the stock price," adding, "On the other hand, SK Hynix is showing positive signs of NAND flash market improvement."

In particular, the mid- to long-term resemblance to Samsung Electronics is seen as positive for investor sentiment. Researcher Kim said, "SK Hynix's price-to-book ratio (PBR) has risen rapidly since December, and the cause of this valuation rerating is not only market and earnings improvements but also an increase in the proportion of investors who have not experienced SK Hynix's operating losses since the third quarter of 2012," explaining, "The absence of operating losses, raising the earnings floor, and reduced earnings volatility give the impression that SK Hynix will resemble Samsung Electronics in the mid- to long-term, and this trend is positive for investor sentiment and PBR reevaluation in the mid- to long-term."

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