UBS: SK Hynix's P/B of 1.66x Implies an ROE Below 20%, but Actual ROE Could Reach 40%

According to UBS’s research report dated July 29, SK Hynix’s stock price has declined 52% from its peak on June 22, with a current price-to-book ratio of just 1.66x, implying a long-term ROE of 18.9%. However, UBS forecasts an average ROE of 40.2% from 2027 to 2031—a difference of 21 percentage points. DRAM bit demand growth is expected to rise from 22% in 2026 to 36% in 2027, while HBM capacity is projected to increase from 230,000 wafers per month at the end of 2026 to 270,000 wafers per month by the end of 2027. SK Hynix is expected to maintain a 48% shipment share in the HBM market in 2026. UBS believes the market’s downward valuation adjustment is unjustified, as AI agents are accelerating memory demand, with ten long-term agreements already signed. Although LTAs are temporarily pressuring ASPs, they are beneficial for long-term profitability. UBS maintains a Buy rating with a reduced target price from KRW 3.2 million to KRW 3 million, expecting approximately KRW 12 trillion in share buybacks to commence in the second half of 2026, with 50% of free cash flow allocated to shareholder returns over the long term.