With SK hynix planning to issue American depositary receipts (ADR) next month, Samsung Securities on the 25th said it expects the reappraisal of the share price in a favorable market to be reflected in the common shares listed on the main market. It maintained a Buy rating and a target price of 3.5 million won. SK hynix's previous closing price was 2.58 million won.
SK hynix said in a filing that on the 24th the board approved issuing depository receipts for a Nasdaq listing.
The ADR that SK hynix will pursue this time will allocate new shares to the depositary bank via a third-party allotment, issuing 17.79 million new shares, or 2.5% of the existing listed shares, to raise about 45 trillion won in new funds. The final offering price will be set on Aug. 10, and trading will begin on Nasdaq. The new shares will then be additionally listed on the KOSPI on Aug. 29 to complete the process.
The ADR will be interchangeable with the underlying Korea-listed shares at a conversion ratio of 0.1, up to a limit of 17.79 million shares. If the ADR trades in the United States at a premium to the price converted from the underlying share, arbitrage transactions may occur.
Lee Jong-uk, an analyst at Samsung Securities, said, "If arbitrage transactions appear, the ADR price could have a pull-up effect on the KOSPI-listed share price."
While ADRs do not theoretically guarantee an increase in a corporation's value, Lee noted it is meaningful that the share price will be reappraised in a market where sentiment is favorable.
Lee said, "As the share price is reappraised in a favorable market and then reflected in the KOSPI-listed common shares, a valuation uplift is expected."
With global memory companies also moving to list, there are expectations that the market's benchmark for memory corporations could change. Kioxia is preparing an ADR listing, and CXMT is preparing an initial public offering (IPO).
Lee assessed, "As evaluations of memory corporations continue in these new markets, there is a possibility that the market's benchmark could change."
Lee also said that after SK hynix completes its ADR listing, it could be included in large overseas semiconductor-related exchange-traded funds (ETF).
There is also analysis that the newly raised 45 trillion won could lead to more resources for shareholder returns. Lee said, "The newly raised 45 trillion won is planned to be used for capital expenditures," adding, "As a result, there is an effect of saving internal cash that was slated for the same capital spending, creating room for shareholder return resources."
The analysis is that the benefits of issuing new shares are greater, given that, in addition to investment and merger and acquisition (M&A) opportunities, the company has secured opportunities to buy back and cancel treasury shares and to increase dividends.
Meanwhile, after the ADR listing, SK Square's equity stake is expected to fall to 20% from 20.5%.