According to Zhitong Finance APP, SK Hynix (SKHY.US) reported a record-breaking third-quarter earnings release alongside a shareholder return plan that significantly exceeded market expectations. JPMorgan and Citigroup on October 28
In today’s report, both maintained a buy rating—JPMorgan maintained an overweight rating with a target price of 2.75 million KRW, and Citigroup reiterated a buy with a target price of 3 million KRW.
WON 10,000, Wedbush raised its price target from WON 2.56 million to WON 3 million and maintained its "Outperform" rating.
On Wednesday, SK Hynix’s shares listed in South Korea rose over 10% to KRW 1,487,000 per share, while its American Depositary Receipts (ADRs) listed in the U.S. gained 7% at the open to $145.36 per share.
Volume and price surge, operating profit exceeds expectations
SK Hynix reported third-quarter revenue of KRW 10.462 trillion and an operating profit of KRW 8.333 trillion, both record highs for a single quarter, representing sequential increases of 32% and 38%, respectively, and year-over-year growth of 328%.
632%. Operating profit margin of 79.7%.
The magnitude of the beat was the first highlight of this earnings report: revenue exceeded JPMorgan’s forecast by 11% and the consensus excluding Goldman Sachs by 7%; operating profit exceeded JPMorgan’s forecast by 16% and the consensus by
9%. According to J.P. Morgan’s report, the consensus estimate is revenue of 978.7 trillion Korean won and operating profit of 76.74 trillion Korean won.
Driven by pricing and product mix. According to JPMorgan, the average selling price of DRAM in Q3 rose "nearly 30%" (high-20%, compared to JPMorgan's original forecast of +20%), NAND
Average price increased mid-20%环比 (mid-20%, originally forecast +12%); DRAM bit shipments rose approximately 10%环比, while NAND bit shipments slightly declined环比 (originally forecast
(+3%). Citigroup added a detail: server DDR5 shipments increased by over 40% quarter-over-quarter, while the decline in NAND bits reflects a shift toward higher-value 321-layer TLC and eSSD.
The result of the product transition. J.P. Morgan believes that the stronger-than-expected average selling price of DRAM indicates a smooth ramp-up of HBM4.
The company’s guidance for the fourth quarter was similarly strong: DRAM bit shipments are expected to rise by a “mid-20%” quarter-over-quarter (JPMorgan’s original forecast was only +4%), and NAND bit shipments are expected to increase by a “mid-single digit” percentage (original forecast).
+3%), driven by 1cnm process expansion, M15X production ramp-up, and increased sales of 321-layer eSSDs.
Wedbush also noted that the company's third-quarter performance exceeded expectations due to higher-than-anticipated average selling prices for DRAM and NAND chips.
The Tiny Crack in the Income Statement: Why Pre-Tax and Net Profit Fell Below Expectations
Revenue and operating profit significantly exceeded expectations, but net profit fell short. JPMorgan cited two key drag factors: foreign exchange losses of 11.6 trillion Korean won and an impairment loss on investments related to Kioxia of approximately 22.9 trillion Korean won. As a result, pre-tax profit amounted to
Won 5.071 trillion in revenue and Won 3.953 trillion in net profit, down 59% and 58% sequentially, below J.P. Morgan’s forecast by 29% and 28%, and below consensus by 33% and
35%.
The second negative listed by JPMorgan is "PC
Signs of patchy weakness in smartphone demand, including adjustments in overall shipment volumes and product mix, are attributed to memory price increases; third, management expects capital expenditures in 2027 to be lower than in 2026.
Significant year-over-year increase"—the company did not provide specific figures. Capital expenditures for the third quarter were 12.7 trillion KRW, and 31 trillion KRW year-to-date; JPMorgan maintains its full-year forecast at 47 trillion.
Trillion-won forecasts; capital expenditures in Citigroup's model are 49.1 trillion won in 2026, 71 trillion won in 2027, and 111.4 trillion won in 2028.
Trillion won, based on estimates rather than company guidance.
The balance sheet continues to improve: the net debt-to-equity ratio improved from -26% in Q2 to -32%, with Citi forecasting a net debt-to-equity ratio of -45.1% by end-2026, indicating further strengthening of net cash position.
100 trillion KRW shareholder return
JPMorgan's statement: The company announced a $100 trillion Korean won shareholder return program for 2026, consisting of $60 trillion in buybacks and $40 trillion in dividends, implying a ratio based on its 2026 free cash flow forecast.
A dividend payout ratio of over 65% is significantly higher than the market consensus of approximately 40 trillion Korean won.
Citigroup's separation involves approximately $30 trillion in cash dividends and approximately $60 trillion in share repurchases and cancellations (including the $40 trillion repurchase announced in August this year). 100 trillion Korean won is approximately $754 billion at the current exchange rate.
billion U.S. dollars.
The confirmed portion is: a dividend of 20,000 KRW per share in the third quarter, with 10,000 KRW from core operations and 10,000
The Korean won comes from the proceeds of Kioxia's equity sale; the company plans to distribute the majority of the proceeds from the Kioxia sale as a special dividend by year-end. This new approval of 20 trillion Korean won for share repurchases includes 10 trillion for shareholder returns and 10 trillion for...
PSU (Performance Stock Units); Citibank explicitly states that the latter is not included in shareholder returns.
Citigroup also provided an incremental assessment: management plans to continue executing buybacks on a quarterly basis, believing the current stock price is undervalued relative to its earnings and cash generation capabilities. Citigroup expects shareholder returns in the fourth quarter to be approximately KRW 35 trillion (including buybacks of approximately
15 trillion KRW + dividends of approximately 20 trillion KRW), and raised its fourth-quarter operating profit forecast from 89.8 trillion to 107 trillion KRW, with operating profit forecasts for 2026 and 2027 increased by 7% and
12%.
In 2027, HBM4 will lead the market, with long-term contracts securing production capacity.
On the technical side, the company plans to increase the proportion of 1cnm server products and expand sales of DDR5 and LPDDR5 SOCAMMs based on 1cnm, with 321-layer NAND in Q4.
The share of domestic production capacity will exceed 50%. Regarding HBM, the M15X will reach full production by the end of 2026, and in the fourth quarter, HBM4 will surpass in both HBM bit volume and revenue share
HBM3E; HBM negotiations for 2027 have been finalized, with JPMorgan stating that the profit gap between HBM and traditional DRAM will "narrow significantly."
Demand visibility is supported by long-term contracts. The company has signed long-term agreements with 14 key customers, locking in contract volumes equivalent to 50% of total capacity for 2027 and 2028.
Above, and in discussions with several customers about extending the typical five-year contract term further. Citibank据此称 DRAM/HBM to 2029
By year-end, "substantially sold out" (including pending clients), with customer demand exceeding available supply by more than two times; at the corporate level, this is stated as "storage demand will exceed supply through 2030."
Year.” The two figures differ in methodology—the former is an investment bank’s estimate, while the latter is the company’s official statement—and are not interchangeable.
Wedbush stated that memory supply may remain tight until 2030, with demand for high-bandwidth memory exceeding twice SK Hynix’s current shipment volume. The company also noted that long-term agreements with 14 customers, covering more than half of its 2027 and 2028 capacity, help enhance demand predictability.
The company's 2027 demand guidance is for DRAM year-over-year growth in the "mid-20s%" and NAND growth in the "high single digits%," according to Citi's model for 2027
The year-over-year growth rates for the two metrics were "mid-20s" and "high single digits," consistent with the company's guidance. The company also stated that quarterly profits have not yet peaked and the upward trend is not expected to reverse until at least 2027.
Valuation and Pricing
JPMorgan initiates overweight rating with a target price of KRW 2.75 million, based on a 7x multiple of 2026-2027 earnings.
Annual average earnings per share, citing that the storage upcycle is "stronger and longer." It should be noted that JPMorgan's price target is set for June 2027, and it recently raised its target price on August 5, 2026, from
Reduced from 3 million KRW to 2.75 million KRW; no increase was made this time.
Citigroup reaffirms a Buy rating with a target price of 3 million KRW, unchanged from the October 27 price of 1,341,000 KRW, implying an equity return of 123.7% and a total return including dividends of
124.9%. Its valuation uses a sum-of-the-parts (SOTP) approach, based on 2026 EBITDA: the HBM business is valued at 7.9x, referencing TSMC's multiple.
EV/EBITDA, as the storage market is transitioning from a traditional commodity market to a highly customized foundry-like model; the commodity storage business is valued at 6.3x, based on the 12-month forward multiple during the early stage of historical upcycles.
EV/EBITDA average.
Wedbush’s new price target implies over 100% upside, based on its 2027 earnings forecast, a valuation multiple of approximately 5 times earnings, plus net cash.
Citigroup's profit forecast shows revenue of KRW 367.95 trillion, operating profit of KRW 288.5 trillion, net profit of KRW 256.1 trillion, and earnings per share of KRW 351,844.
KRW, with a P/E ratio of 3.8x, ROE of 106%, and free cash flow yield of 17.9%; by 2027, the P/E ratio is expected to decline to 2.8x and the free cash flow yield to increase to
26.5%. According to Citigroup data, the company's market capitalization is approximately 979.59 trillion Korean won, equivalent to about $738.5 billion.
In terms of risks, J.P. Morgan lists lower-than-expected DRAM prices and profit margins, as well as uncertainty in end-demand and inventory levels; Citigroup lists declining DRAM demand and NAND
Demand weaker than expected, sluggish global consumption.
JPMorgan previously assessed that market sentiment toward SK Hynix ahead of the earnings report was negative (due to foreign exchange headwinds and lower-than-expected EPS from the prior quarter). This beat combined with the updated shareholder return plan "should bring sentiment back into positive territory."