SK Hynix Q3 Earnings Beat Expectations; JPMorgan Sets 105% Upside Target

Hana Financial News: On October 28, SK Hynix announced its third-quarter financial results. Quarterly revenue reached KRW 104.6155 trillion, marking the first time in history it surpassed KRW 100 trillion—a year-over-year increase of approximately 328% and a quarter-over-quarter increase of 32%. Operating profit came in at KRW 83.3338 trillion, up approximately 632% year-over-year and 38% quarter-over-quarter, with a profit margin nearing 80%, a record high. Net profit stood at KRW 39.7756 trillion, slightly below some expectations due to foreign exchange losses and factors related to its investment in Kioxia. The strong performance was primarily driven by demand from AI infrastructure, with accelerated shipments of HBM (particularly HBM4), alongside robust price increases and volume growth in server DRAM/DDR5 and eSSD. The company announced a total shareholder return of approximately KRW 100 trillion for fiscal year 2026, including at least KRW 30 trillion in cash dividends and at least KRW 60 trillion in share repurchases and cancellations, with the majority of gains from its Kioxia investment to be returned to shareholders. SK Hynix reaffirmed its view that the memory market supply-demand imbalance is expected to persist until 2030. It has signed long-term supply agreements (LTAs) with 14 major customers, covering over 50% of its capacity for 2027–2028. HBM4 is projected to surpass HBM3E in both shipment volume and revenue starting in the fourth quarter and become the primary product. Nearly all DRAM and HBM capacity through 2029 has already been pre-sold. Actual results significantly exceeded market consensus (operating profit consensus: KRW 76.7–77 trillion), driving upward movement in related stock prices. J.P. Morgan noted that sales and operating profit exceeded consensus by approximately 9% and 16%, respectively, and also surpassed its own expectations by about 11% and 16%. The upside was primarily driven by stronger-than-expected ASP increases for server DRAM and eSSD (DRAM ASP rose more than 20% quarter-over-quarter, with NAND ASP increases exceeding 20%), along with better-than-guidance shipment volumes, indicating smooth ramp-up of HBM4 capacity. Although pre-tax and net profits were weighed down by foreign exchange losses (approximately KRW 11.6 trillion) and potential valuation adjustments related to Kioxia, the robust operating profit reaffirmed the logic of the memory upcycle. The bank emphasized that the KRW 100 trillion shareholder return plan—accounting for over 65% of expected free cash flow in 2026—far exceeds market consensus, reflecting management’s confidence in future cash flows. Long-term agreements securing over 50% of capacity for 2027–2028, HBM4 becoming the lead product in Q4, and the outlook of demand outstripping supply until 2030 provide strong visibility for medium- to long-term revenue and profitability. Capital expenditures are progressing as planned, with a significant increase expected in 2027. J.P. Morgan maintains an Overweight rating with a target price of KRW 2,750,000 (approximately 7 times the average expected EPS for 2026–2027), implying about a 105% upside from current levels. The core thesis is that the memory upcycle remains in its early stages, and SK Hynix, as a pure-play memory company, offers higher earnings elasticity with significantly enhanced execution capabilities in AI solutions driving profitability. MS Hwang, Research Director at Counterpoint Research, stated that the primary drivers behind this quarter’s sharp profit jump were rapid price increases in traditional DRAM and NAND, with HBM price hikes also contributing—but not as the sole factor. Long-term agreements signed with key customers—including NVIDIA—signal another pricing cycle ahead for conventional DRAM, NAND, and HBM. The firm believes quarterly profits have not yet peaked and the upward trend is likely to continue at least through 2027. The company’s view that memory supply shortages will persist until 2030 aligns with industry observations regarding increased complexity in advanced node manufacturing and extended timelines for new capacity buildout.