Clients Adhere to Conservative Inventory Strategies
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Cut target price to KRW120,000
We cut our TP on SK hynix from KRW125,000 to KRW120,000 (12m fwd BVPS x 1.20x P/B), as 2022E/2023E earnings were significantly revised down to reflect lowered bit growth projections (drops in PC/smartphone/server demand) and DRAM/NAND price outlooks. Despite lack of earnings momentum, we maintain BUY given that the stock is trading at historically low valuations, suggesting that the industry downcycle has already been partially reflected. Furthermore, limited increases in supply expected in 2023 should reduce cyclical volatility despite demand uncertainties.
3Q22 forecast: OP at KRW1.8tn (-56.9% QoQ)
We forecast 3Q22 revenue at KRW10.7tn (-22.3% QoQ, -9.1% YoY) and OP at KRW1.8tn (-56.9% QoQ, -56.0% YoY; 17.1% OPM), as well as 4Q22 OP at KRW1.1tn (-37.6% QoQ, -72.2% YoY; 10.8% OPM). 3Q22 DRAM/NAND bit growth is estimated at -12% QoQ/-15% QoQ, with ASP eroding 15% QoQ/17% QoQ. For 2022, we forecast revenue at KRW47.3tn (+10.1% YoY) and OP at KRW10.0tn (-19.1% YoY; 21.2% OPM).
Chip prices to fall while clients adhere to conservative inventory strategies
Global memory chip demand has yet to show any signs of improvement. We attribute the decline in chip demand/prices to contracting downstream demand (e.g., PC, smartphone, server) and clients adopting conservative inventory strategies based on expectations of an economic slowdown in 2023. Accordingly, we expect chip prices to remain weak until clients wind down inventory adjustments in 1H23. Given the high price volatility of NAND, we expect NAND prices to drop more than DRAM prices as NAND manufacturers compete for market share. This should increase uncertainty, further clouding SK hynix’s NAND earnings visibility.