NAND Market Competition Weighing on Stock
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Gap between stock price and earnings given semiconductor stocks typically lead earnings
We maintain BUY and 12m TP of KRW120,000 on SK hynix. Despite downward earnings revisions, we remain bullish given that semiconductor stocks typically lead earnings by six months. Currently, the stock appears to reflect (1) historically low valuations in September, (2) the semiconductor capex downcycle and (3) reduced inventory levels (output cutbacks). We forecast earnings to slump until 1H23 amid sustained drops in DRAM/NAND ASP and inventory adjustments. Earnings should then recover in 2H23, backed by limited global chip supply growth and stockpiling demand (mainly server chips).
3Q22 preview: OP of KRW1.6tn (-61% QoQ)
We forecast 3Q22 revenue at KRW10.9tn (-21.0% QoQ, -7.5% YoY) and OP at KRW1.6tn (-61.3% QoQ, -61.1% YoY; 14.9% OPM), which is short of the market consensus. DRAM/NAND bit growth should be at -5% QoQ/-10% QoQ, with ASP falling 20% QoQ/21% QoQ. For 4Q22, we forecast operating loss of KRW186.9bn with DRAM/NAND bit growth of +3% QoQ/+10% QoQ and ASP falling 20% QoQ/22% QoQ.
NAND market competition weighing on stock
Unlike the DRAM market, which is dominated by a small oligopoly, the NAND market has six companies competing for market share and is sensitive to demand. That said, the current market landscape suggests NAND prices will continue falling. Furthermore, global rivals have better cost structures and robust profit margins, which allows them to cut prices to stoke demand. We see SK hynix making up for NAND shortcomings via DRAM. As such, earnings should begin recovering sharply in 2H23, when supply-demand dynamics are expected to improve.