The author is an analyst for NH Investment & Securities. He can be reached at youngryu@nhqv.com -- Ed.
SK Hynix is expected to post stable results, aided by earnings for high-performance memory products such as DDR5 and HBM, thanks to its superior technological competitiveness. Demand for high-performance memory should continue to rise in 2024 alongside advancements in AI.
Earnings strengthening on strategic supply control and ASP increase
SK Hynix should report 4Q23 sales of W10.6tn (+17.2% q-q, +38.5% y-y) and operating loss of W109bn (RR q-q, RR y-y), with earnings to outperform the consensus sales of W10.4tn and operating loss of W230bn. In 3Q23, the DRAM division achieved an early turnaround. Although the pace of deficit reduction at the NAND division in 3Q23 was disappointing, losses likely continued narrowing in 4Q23 thanks to supply adjustments and ASP growth.
Like Micron, SK Hynix is adhering to a conservative supply strategy, and it is believed that OP is climbing thanks to ASP expansion effects and strategic efforts to supply products flexibly in response to price increase. Currently, market concern is focused on the following two points. 1) Faster-than-expected utilization rate recovery; however, with suppliers remaining conservative, we do not expect utilization rate rise to cause sharp price decline. 2) Capex expansion; regarding this point, as investment is focused on high value-added products rather than overall capacity increase, capacity decrease due to line conversion should outweigh production growth.
To successfully compete in memory-centric era based on technological competitiveness
We raise our TP on SK Hynix from W158,000 to W170,000. Our TP is calculated by applying a P/B of 2.0x to 2024F BPS. Although valuation concerns are present, if the company’s technological competitiveness in high value-added products such as DDR5 and HBM strengthens and general memory price rise accelerates, additional share price growth momentum should materialize. We believe that increasing weight on the stock remains effective.