Hanwha Investment & Securities raised its target price for SK hynix to 4.3 million won. It is the highest target price for SK hynix among those presented by domestic securities firms. The analysis said the industry should move away from the old undervaluation logic applied to memory stocks, as earnings volatility has shrunk sharply with growth in the artificial intelligence (AI) chip market.
Park Jun-young, an analyst at Hanwha Investment & Securities, on the 22nd maintained a "Buy" rating on SK hynix and raised the target price to 4.3 million won from 1.63 million won. That is 55.6% higher than the previous session's closing price of 2.764 million won.
Park applied a price-earnings ratio (PER) of 10 times to an expected earnings per share (EPS) of 429,777 won for the next 12 months to calculate the target price. Considering that global chip companies are assigned at least a 10-times forward PER, Park judged SK hynix should be evaluated by the same standard.
Park said, "SK hynix is no longer a company with extreme earnings volatility but is transforming into a company that can consistently generate high levels of profit, and there is no reason to receive an unfounded discount within the global tech sector."
Until now, Korean memory companies have received lower valuations than global chip corporations because of large earnings swings tied to the industry cycle. But in the AI chip era, the expansion of long-term agreements (LTA) and growth in the high bandwidth memory (HBM) market have changed the profit structure itself, the report said.
Park explained, "Korea's memory industry is overcoming past weaknesses on the back of powerful tools—LTAs and HBM," and added, "As the durability of earnings is secured, there is no longer any reason for Korea's memory industry to be valued on a price-to-book ratio (PBR) basis."
In fact, SK hynix's 12-month forward PER is currently stuck at about 6.6 times. By contrast, most global chip corporations, including U.S.-based Micron, trade at forward PERs of at least 10 times. Hanwha Investment & Securities projected that, in terms of operating profit scale, Korean memory firms will outpace global rivals.
In particular, the firm projected that the expansion of long-term agreements will greatly increase earnings stability going forward. In past downturns, the operating margin sometimes fell below 10% or even turned to a loss, but the analysis said the situation could change in the future.
Park said, "Due to the LTAs currently being signed, we judge that in future downturns a minimum operating margin of around 30% will be ensured."
Park also cited the rising share of HBM as a key variable. Hanwha Investment & Securities estimates that HBM accounts for around 20% of SK hynix's operating profit. The firm said HBM has lower price volatility and higher profitability than commodity memory, boosting earnings stability.
In addition, a U.S. American depositary receipt (ADR) listing being pursued within the year was presented as another re-rating catalyst. If the ADR listing goes ahead, access for U.S. investors will improve and the company will be directly compared with global chip corporations.
Park said, "Given the company's overwhelming valuation appeal and its technological edge versus peers, an ADR would be a critical opportunity for the company to be re-rated again," adding, "From both fundamental strength and momentum perspectives, it is judged to be the best investment target at present."