Record-high Earnings Expected in 2022

The author is an analyst of Shinhan Investment Corp. He can be reached at doyeon@shinhan.com. -- Ed.

 

1Q21OP in line with consensus at KRW1.32tr

SK Hynix posted operating profit of KRW1.32tr (+37.1% QoQ) on sales of KRW8.49tr (+6.6% QoQ) for 1Q21, meeting the FnGuide consensus of KRW1.34tr. For DRAM, the company reported 4% QoQ improvement in both ASP and shipments. NAND earnings also recovered on sharp shipment growth (+21% QoQ), despite a 7% QoQ drop in ASP levels.

In 2Q21, we expect SK Hynix to enjoy steep earnings improvement to sales of KRW9.64tr (+13.4% QoQ) and operating profit of KRW2.38tr (+79.4% QoQ) on overall improvement in ASP levels (DRAM +16% QoQ, NAND +3% QoQ).

Servers to drive memory chip demand from 2Q21

key driver of memory demand will likely switch from mobile devices and PCs through 1Q21 to servers from 2Q21. Mobile devices, now seen as consumer staples, tend to drive memory demand growth in the early stages of economic recovery. Spending on servers, considered as capital investment, are typically carried out in the later stages of economic recovery. With mobile/PC chip demand remaining solid, SK Hynix stands to report sharp earnings growth for 2Q21 and 3Q21.

Intel's new platform launch and the DRAM industry's full-scale shift to DDR5 from 2H21 will likely lead to increases in demand, price premiums and supply constraints, brightening the outlook further for DRAM market conditions. Supply constraints in NAND are also expected to worsen as chipmakers start to adopt double-stack technology in earnest from 2H21. As a result, we expect to see an earnings-driven rally continue through 2Q22.

Recommend accumulating shares during short-term correction

SK Hynix’s short-term share performance has been weighed down by concerns that disrupted production of tech products caused by non-memory chip shortages could negatively affect memory demand going forward. Faced with unprecedented semiconductor shortages, however, we believe clients will choose to preemptively stock up on memory chips and maintain inventory at relatively higher levels vs. the past in the long run.

Concerns over a possible peak in memory market conditions seem premature at this point. Aside from macroeconomic shock periods, SK Hynix's share price has yet to record an actual downtrend to date. With most short-term concerns seen priced in at current levels, we expect shares to rally sharply after confirming bottom.

Key investment points for SK Hynix are: 1) forecasts for steep earnings growth from 1Q21; 2) expectations for record-high earnings in 2022; and 3) potential re-rating following the acquisition of Intel’s NAND flash business.

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