Hard Landing for Chip Industry in 2H22 Unlikely
The author is an analyst of KB Securities. He can be reached at jeff.kim@kbfg.com. -- Ed.
Maintain BUY; Revise down TP to KRW125,000
We maintain BUY on SK hynix, but lower our 12m TP by 11% to KRW125,000 (12m fwd BVPS X 1.25x target P/B) on a decline in 3y avg. ROE (12.9%→11.9%), attributable to downward revisions to earnings estimates resulting from rising inflation rates and supply network disruptions delaying improvements to memory chip supply-demand dynamics in 2H22. Yet, we reiterate BUY as: (1) the decline in share valuations appear excessive compared to the company’s earnings amid the anticipated decrease in memory chip price in 2H22; and (2) a hard landing for industry conditions is not likely as the increase in chip supply in 2023 is likely to be limited.
2Q22E OP of KRW3.8tn (+34% QoQ)
We forecast 2Q22 revenue of KRW14.3tn (+18.0% QoQ, +38.9% YoY) and OP of KRW3.8tn (+33.9% QoQ, +42.1% YoY; 26.7% OPM). OP growth should continue through 3Q22 (3Q22E OP of KRW4.0tn; 4Q22E OP of KRW3.7tn). DRAM ASP should see its decline accelerate (from -2% in 2Q22 to -5% in 3Q22), while NAND ASP should swing to negative territory (from +5% in 2Q22 to -4% in 3Q22). For 2022, we forecast revenue of KRW59.4 (+38.2% YoY) and OP of KRW14.4tn (+16.1% YoY; 24.2% OPM).
Hard landing for chip industry in 2H22 unlikely
Amid growing macro uncertainties, we believe the steady rise in server/iPhone demand is unlikely to fully compensate for falling smartphone/PC demand. We see DRAM/NAND prices falling in 2H22 on: (1) delayed turnaround of smartphone/PC demand in China; (2) server parts shortage; and (3) the postponed release of Intel’s Sapphire Rapids. Yet, we do not see chip industry conditions deteriorating as quickly as they had in 4Q18, given: (1) low chip inventory levels (three weeks); and (2) limited chip capacity increases in 2023.