Fear of Largest Deficit in 10 Years Hits '8manix'... SK Hynix Stock Price Stalled at the Top

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[Asia Economy Reporter Lee Seon-ae] SK Hynix's stock price has been gripped by fear. Amid concerns over the semiconductor industry outlook and poor earnings, harsh criticism from the securities industry has poured in, leaving it in an '80,000-nix' situation. There is advice to make a rational judgment on the investment timing, as earnings are expected to recover after the first half of next year.

According to the Korea Exchange on the 19th, SK Hynix closed at 88,400 won, up 700 won (0.80%) from the previous trading day. On the 17th, the stock price ended at 87,700 won, down 3,800 won (4.15%) from the previous trading day. The stock price on the 17th was affected by the sharp decline in semiconductor stocks on the New York Stock Exchange in the U.S. Micron Technology, the world's third-largest semiconductor company, announced plans to reduce semiconductor supply such as DRAM and NAND flash and cut spending including investments, causing its stock price to plunge 6.7%. Concerns over the worsening semiconductor industry added to the decline, with Nvidia (-4.54%), AMD (-4.81%), Intel (-3.84%) also falling, and the Philadelphia Semiconductor Index, which comprises 30 semiconductor-related companies, dropping 4.26%, leading domestic semiconductor stocks to show weakness.

Supported by a rebound buying force, the stock price rose slightly the previous day but still remained in the 80,000 won range. The prevailing view is that the stock price trend will continue to be sluggish. This is interpreted as being due to poor earnings holding it back.

On a consolidated basis for the third quarter, operating profit was 1.6556 trillion won, down 60.3% year-on-year, and sales decreased by 7% to 10.9829 trillion won. Net profit fell 66.7% to 1.1027 trillion won.

The fourth-quarter earnings outlook is even gloomier. Hanwha Investment & Securities forecast SK Hynix's fourth-quarter sales to drop 26% from the previous quarter to 8.1 trillion won and expect an operating loss of 492.5 billion won, turning to a deficit. The 2023 earnings are also expected to decrease by 25% year-on-year to 33.6 trillion won, with an operating loss of 2 trillion won. Kim Kwang-jin, a researcher at Hanwha Investment & Securities, said, "Next year's sales are expected to be 33.6 trillion won, down 25% from this year, with an operating loss of 2 trillion won," adding, "This would be the largest deficit since 2008."

Kiwoom Securities projected fourth-quarter sales at 8.4 trillion won and an operating loss of 930.9 billion won, expecting results to fall below market consensus (average earnings forecast). The target price was also lowered from 130,000 won to 120,000 won. Park Yoo-ak, a researcher at Kiwoom Securities, warned, "SK Hynix's operating loss in the fourth quarter is expected to be 930.9 billion won, falling short of market expectations," adding, "There is also a possibility of inventory valuation losses in the NAND division, which turned to an operating loss, so actual earnings could be even lower than forecasts." He further noted, "Next year, due to intense inventory adjustments by customers, an operating loss of around 300 billion won is expected."

The last time SK Hynix recorded an annual loss was in 2012. The operating loss in 2012 reached 227.3 billion won.

Accordingly, the common voice in the securities industry is that a cautious investment strategy is necessary. Researcher Park said, "Expectations for a NAND turnaround and concerns over the DRAM cycle deterioration will limit the stock price's downside and upside for the time being," adding, "However, from the first quarter of 2023, when signals of DRAM industry improvement are expected to be observed, the stock price will begin to rise."

The earnings slump is expected to continue until the first half of next year. Agyujin, a researcher at DB Financial Investment, pointed out, "After an unusual supply adjustment, demand recovery due to increased loading is expected, leading to earnings growth entering after the third quarter of next year." He emphasized, "However, stock prices always lead the industry outlook."

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