SK Hynix raises target price to KRW 260,000 from KRW 185,000 (JP Morgan)

SK Hynix raises target price to KRW 260,000 from KRW 185,000 (JP Morgan)

- Higher HBM TAM/Growth and Longer DRAM Upcycle Could Lead To Further Gains In Stock

- 1Q24 strong earnings and the possibility of an upward revision to earnings will be the main catalyst in the short term

- The other main driver is,

1) AI GPU build/customer demand and ASIC's inference HBM content update

2) HBM3E 12-Hi certification progress and HBM backend investment update in 2025

3) HBM3E price/margin, etc

- Upgrades for HBM business as order visibility extends to 25 years

- Similar to MU's strong HBM order/price forecast through 25, we now have higher confidence in HBM bit/sales mix growth that underpins the longer DRAM ASP increase cycle through the second half of 25

- A major differentiator over the previous upcycle is the price increase at the expense of bit shipments, which we believe means additional tailwinds to non-HBM supply and demand, especially for DDR5 products

- 12-Hi HBM3/3E bit mix, back-end capa increase by year-end, yield/ASP adjustment to modify SK Hynix's HBM assumption

- FY24/25E HBM Revenue Estimates Up To $9.7 Billion/$18.7 Billion (meaning 29%/40% Contribution To Total DRAM Revenue)

- Expectations for a NAND market recovery are still far off, but signs of strong NAND price gains are beginning to be detected due to traditional server demand recovery and industry-wide supply regulations

- The most important thing about MU's earnings conference is that 24-year NAND bit demand and price growth have been upgraded

- Although gradual, sequential ASP improvements are expected based on inventory valuation gains.

- 1Q operating profit estimated at KRW 2.1 trillion

- Major DRAM Upcycles have been driven by the emergence of new memory demand drivers such as servers, smartphones, and PCs, and the visibility of HBM orders extended to 25 years gives us confidence in a prolonged DRAM Upcycles along with an earnings upcycles

- Given SK Hynix's HBM3/3E leadership, it believes a new valuation is needed and raises its target price to KRW 260,000 for a 25-year basis P/B 2.1 times (highest multiplex since GFC)