Inventory decline begins

The author is an analyst for NH Investment & Securities. He can be reached at hwdoh@nhqv.com -- Ed.

For SK hynix, inventory restocking orders have started to materialize from some customers. With the inventories of memory makers trending down, industry conditions are forecast to improve in earnest from 3Q23.

Inventory decline begins

Maintaining a Buy rating, we raise our TP on SK Hynix from W117,000 to W150,000 on a change in valuation base year from 2023E to 2024F on the entry into 2H23.

We forecast 2Q23 sales of W5.80tn (+14% q-q) and operating loss of W2.95tn (RR q-q), in line with our previous estimates. This year, the firm’s annual operating loss is expected to reach W8.09tn. For 2Q23, we predict that DRAM shipments will rise 32% q-q, with ASP falling 10% q-q, and NAND shipments will climb 17% q-q, with ASP sliding 8% q-q. As expectations for industry improvement in 2H23 are picking up, some customers have boosted their inventory replenishment orders. The inventory held by memory makers is beginning to decrease.

HBM momentum on the rise

Industry conditions look set to improve in earnest from 3Q23. DRAM and NAND ASPs should turn upward, helping to significantly reduce losses. Industry-wide production cuts are in progress, and demand is strengthening with a focus on PCs and AI servers. Thanks to aggressive inventory adjustment efforts by clients from 2Q22, inventories of some products, including TVs, peaked in 1Q23 and then turned downward. Smartphone and server-related parts and memory inventories peaked in 2Q23.

In terms of high-bandwidth memory (HBM), which is mainly used in AI computing servers, SK Hynix boasts superior market share and technological prowess versus competitors. Moving ahead, we expect the HBM-related market to grow at a CAGR of more than 40%. Helped by improving industry conditions, SK Hynix should log 2024 OP of W19.92tn, close to the 2018 record high.