SK hynix
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
We maintain BUY and TP of KRW110,000 for SK hynix. Although SK hynix’s losses should widen as conservative inventory management at North American server companies undermine DRAM/NAND shipments and prices, we maintain our positive outlook, given that: (1) the decline in memory chip prices should slow as they edge near cash cost levels; and (2) production cutbacks by chip makers should help improve supply-demand dynamics. Downward revisions to consensus earnings estimates should therefore decelerate after the 1Q23 earnings release (in April).
DRAM/NAND ASP down 76%/68% in past nine months
We expect a 24%/16% decline in DRAM/NAND prices for 1Q23. As such, total price drop over the past nine-month period (3Q22-1Q23) should amount to around 76% for DRAM and 68% for NAND. SK hynix should suffer an average loss of KRW3.9tn each quarter in 1H23 as inventory valuation losses mount amid the drop in memory chip shipments and prices. From 2Q23, however, the increase in inventory valuation losses should slow as DRAM/NAND prices close in on cash cost levels and the price drop slows to under 10%.
2023E operating loss of KRW11.3tn; Loss to narrow in 2H23
We forecast 2023 revenue of KRW23.7tn (-46.9% YoY) and operating loss of KRW11.3tn. Operating loss in 2H23 should narrow to less than half of that in 1H23 (KRW3.6tn loss in 2H23 vs. KRW7.7tn loss in 1H23), thanks to an increase in DRAM/NAND shipments and an upturn in ASP, however. On a quarterly basis, operating loss should narrow from 1Q23 (KRW1.7tn in 4Q22 → KRW4.0tn in 1Q23 → KRW3.7tn in 2Q23 → KRW2.6tn in 3Q23 → KRW1.0tn in 4Q23). DRAM/NAND bit growth is forecast at +2%/+21%, while ASP is expected to fall 48%/53% YoY. Industry-wide production cutbacks should begin affecting supply-demand dynamics after 3Q23. Meanwhile, shares in SK hynix are trading at 1.07x P/B. Despite the expected earnings slump in 1H23, downside risk should be limited given that the share-price performance of semiconductor stocks tend to lead by six months.