First SK Hynix Investment Rating Downgrade Report of the Year Appears: "Growth Momentum to Weaken in Second Half" [Click eStock]

Investment Rating Downgraded to 'Hold'
Target Price Maintained at 1.3 Million Won

For the first time this year, a securities report has been issued that downgrades the investment rating for SK Hynix from "Buy" to "Hold." It is the first time in about nine months that a domestic securities firm has published a report on SK Hynix that does not carry a buy recommendation.

SK hynix achieved record-high sales, operating profit, and net profit in the third quarter of 2024, driven by high-bandwidth memory (HBM) performance. Photo of the SK hynix headquarters in Icheon, Gyeonggi Province, on the 25th. Photo by Jinhyung Kang

According to BNK Securities on April 28, researcher Lee Minhee explained, "Despite the steep growth in earnings, the company is now entering the latter phase of the semiconductor boom cycle, and considering the anticipated slowdown in momentum during the second half of the year." However, the target price was maintained at 1.3 million won.

Researcher Lee first noted, "SK Hynix's first-quarter results this year did not meet the heightened expectations of the market." SK Hynix reported first-quarter sales of 5.2576 trillion won (a 198% increase year-on-year) and operating profit of 3.761 trillion won (a 405% increase year-on-year). While these figures slightly exceeded market consensus, they fell short of market sentiment, which had anticipated an operating profit exceeding 4 trillion won following the recent earnings releases by Samsung Electronics and Micron.

Researcher Lee explained, "NAND shipment volume fell by 11% compared to the previous quarter, resulting in lower-than-expected sales and also a lower profit margin than anticipated." She added, "For both DRAM and NAND, the increase in unit production costs limited the improvement in profitability, which was less pronounced than the rise in prices."

While operating profit for the second quarter of this year is expected to increase further to 6.0252 trillion won, she projected that growth will slow from the second half of the year. This is attributable to two factors: the inference AI (artificial intelligence) cycle that began last year is moving into its latter stages, and the sales proportion of HBM4 (sixth-generation high-bandwidth memory), which is relatively less profitable, is rising.

Researcher Lee stated, "The upward trend in AI-related capital expenditures by big tech companies has stalled since last month. With the gap between spot prices and fixed contract prices narrowing, the pace of price increases is also expected to slow significantly." She added, "Although server orders will keep supply tight in the second half, the catalyst for further share price gains will likely weaken."

Changes are also expected from the valuation perspective. Researcher Lee emphasized, "Even if earnings continue to rise sharply, as the company enters the late stage of the business cycle and momentum slows, SK Hynix is likely to transition into a low price-to-earnings ratio (PER) stock." She further noted, "Although positive developments such as shareholder return policies and the issuance of American Depositary Receipts (ADR) are expected in the second half, the share price will likely remain range-bound."

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