Meritz's Sunwoo Kim: "SK hynix 3Q OP expected to surprise with 80.1 trillion KRW"

[Meritz Securities Semiconductor/Display, Sunwoo Kim]
▶ SK hynix (000660): 3Q26 OP expected to surprise with 80.1 trillion KRW
[3Q26 Operating Profit: Different from the first half. Reversal of suppressing factors]
- SK hynix's 3Q26 operating profit is expected to exceed market expectations, reaching 80.1 trillion KRW, a 32% increase compared to the previous quarter.
- Due to the recent trend of KRW strength and the company's relatively slower performance improvement in the first half, the 3Q26 operating profit estimate had dropped to 70 trillion KRW (consensus was 74 trillion KRW).
- The growth rates for 3Q26 DRAM and NAND shipments/ASP are expected to be +13%/+22% and +4%/+15% respectively, with operating profits estimated at 63 trillion KRW and 17 trillion KRW (estimated OPM of 84% and 69% respectively).
- The previous relative performance lag is now reversing. This is due to:
1) A compensatory reversal occurring from the strategy of maximizing customer-centric flexibility from a mid-to-long-term perspective regarding pricing.
2) While the high proportion of HBM sales—the highest in the industry—previously weighed on ASP growth rates, the profit contribution is now accelerating as full-scale HBM4 supply begins.
3) Existing contracts with key mobile customers are being renegotiated due to industry-wide LTA discussions, shifting toward terms significantly more favorable to suppliers.
- We forecast a surge in mobile memory ASP starting from 1Q27 (Figure 1), and have upwardly revised 2026E/2027E operating profit to 264 trillion KRW / 454 trillion KRW.
- We expect an upward revision of market performance estimates and a structural improvement in investor supply/demand within 4Q26.
[Focus on long-term opportunity creation amid price inelasticity of demand in the 'Intelligent Technology' era]
- Unlike past B2C cycles, this B2B cycle shows price inelasticity of demand, and competitive large-scale investment will continue until a laggard emerges among Big Tech companies.
- Although some concerns have been raised regarding recent reports on the company's pursuit of a Solidigm IPO, investors are focusing on the long-term opportunities behind it.
- In addition to LTAs, the company is pursuing various partnerships to increase its mid-to-long-term market predictability.
- Cash inflows from the Solidigm IPO process are expected to be utilized for equity swaps with the parent company 'SK AI co' and the establishment of JVs. This can be interpreted as a concept of 'creating' mid-to-long-term demand.
[Expectation of shareholder return derivation for pure shareholder value enhancement. Upward revision of target price]
- The 'surplus' from rapidly increasing cash flows should rightfully be allocated first to the 'recovery' of shareholder value, and the company has also mentioned shareholder value enhancement and the undervaluation of its stock in recent disclosures.
- We expect the immediate derivation of a new return policy following the conclusion of the ongoing 40 trillion KRW share buyback program.
- We maintain a Buy rating and have raised the target price to 3.2 million KRW (applying an average P/B of 4.0x for 26E/27E).
* This material is a pre-disclosed document in compliance with Compliance regulations and cannot be used as evidence of legal liability regarding the results of a customer's securities investment.