2023 Forecast: Operating Loss at KRW8.7tn
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Memory inventories at clients to normalize in 1H23
We maintain BUY and TP of KRW110,000 on SK hynix. Despite our forecast of massive losses this year, we still hold a positive stance on the company. The memory chip industry is poised to bottom out in 1H23 as inventories at North American data centers and Chinese smartphone makers normalize. Also, SK hynix and other chipmakers should see declines beginning in 3Q23. Notably, global chipmakers (e.g., Samsung Electronics, SK hynix, Micron) are starting to lower production/investments, suggesting the effects of reduced shipments should be highlighted. Supply-demand dynamics should improve faster than expected.
2023 forecast: operating loss at KRW8.7tn
We forecast 2023 revenue at KRW24.9tn (-44% YoY) and operating loss at KRW8.7tn (turn to red YoY). Quarterly operating losses should gradually narrow starting in 2Q23 (4Q22/1Q23E/2Q23E/3Q23E/4Q23E at -KRW1.7tn/-KRW2.6tn/-KRW3.2tn/-KRW2.2tn/ -KRW0.6tn). We expect 2023 DRAM/NAND bit growth at 6% YoY/16% YoY and DRAM/NAND ASP drops of 44% YoY/56% YoY. DRAM/NAND ASP should continue falling until 2Q23 (decline has slowed since 4Q22); DRAM ASP should rebound from 3Q23.
Memory prices to reach cash cost levels, indicating market bottom near
SK hynix stock is not quite linked to recent earnings declines, as stock performance leads industry conditions by six months. With memory prices falling ~50% YoY as of this quarter, DRAM prices are below manufacturing cost and NAND has already reached cash cost levels. If DRAM/NAND prices fall by an additional 29% in 1H23, DRAM should reach cash cost levels in 2Q23, which would indicate that a market bottom is near. Thus, we believe upside risks currently outweigh downside risks.