Enterprise SSD Market Share to Jump to No. 1
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY and target price of KRW110,000; DRAM supply shortage expected in 2H21
We maintain BUY and our TP of KRW110,000 for SK hynix. We think 4Q20 presents an opportunity to increase the weighting of SK hynix considering: (1) The slowdown of chip ASP decline that began in 1Q20 (inventory normalization on both supply and demand side) (2) An expected chip ASP upturn in 2Q21 (favorable supply-demand dynamics) (3) A DRAM supply shortage expected in 2H21 (DRAM/SSD demand for server replacements to begin in 1Q21).
Given our predictions, we expect SK hynix to post 2021 OP of KRW8.5tn (+76% YoY), the highest level since 2018. Anticipated earnings improvement in 2021 makes it more appealing given that its stock is the only one among KOSPI’s top 10 largest stocks to record a negative return YTD (-14%).
Synergies expected from acquisition; enterprise SSD market share to jump to No. 1
Putting aside the controversy over the KRW10.3tn price tag for Intel’s NAND business, the bottom line is that the deal helped boost SK hynix’s market share and profit margins. Also, storage optimization technology via software and controllers will improve, expanding the company’s NAND portfolio. This, along with cost competitiveness in quad-level cell production coming from the floating-gate technology employed by Intel’s Dalian fab, should help SK hynix raise its global eSSD market share from 7% (ranked fifth) to 37% (ranked first) vs. Samsung Electronics’ market share of 34%.
2021 forecast: OP at KRW8.5bn (+76% YoY); earnings growth to boost valuation merit
We forecast 2021 OP at a three-year high of KRW8.5tn (+76% YoY) based on the following expectations: (1) An upturn of DRAM/NAND ASP of 4% QoQ/3% QoQ in 2Q21 (2) A jump in DRAM ASP (+4.9% YoY in 2021 vs. -12.7% in 2020) and supply shortage (2021 SK hynix bit growth of +15% vs. demand growth of +19%) (3) A narrowing of NAND business losses (KRW1.0tn in 2020→ KRW218.1bn in 2021), with an increase in the revenue proportion of 128-layer chips and growth in SSD shipments offsetting a decline in NAND ASP.