The author is an analyst of NH Investment & Securities. He can be reached at hwdoh@nhqv.com. — Ed.
Amid deepening IT demand decline, SK Hynix’s sluggish performance is expected to continue into 1H23. Supply-demand improvement is anticipated from 2H23 through active supply control efforts (eg, investment reduction and production cuts) across the memory industry.
To report 4Q22 operating loss of W0.8tn
We maintain a Buy rating and TP of W117,000 on SK Hynix. Reflecting 2023F~2025F COE of 9.5% and average ROE of 12.8%, our TP corresponds to a 2023F P/B of 0.9x. We forecast 4Q22 sales of W8.8tn (-20% q-q), operating loss of W0.8tn (TTL q-q), and net loss of W1.0tn (TTL q-q).
Affected by macro deterioration, IT set sales and data center investment are sluggish. We expect 4Q22 DRAM shipments to arrive flat q-q, with ASP to fall 23% q-q, and NAND shipments to slide 3% q-q, with ASP to drop 27% q-q. The industry slump is likely to continue through 1H23. We project SK Hynix’s 1Q23 operating loss at W1.4tn and 2Q23 operating loss at W1.3tn. For 2023, annual operating loss is forecast at W1.6tn (TTL y-y).
In 2023, production-based DRAM supply to decline for first time in history
A turnaround in the memory market is expected to kick off from 2Q23. Memory makers are aggressively adjusting production and reducing new capacity investment to respond to falling memory prices. SK Hynix announced that it plans to chop capex by 50% y-y (estimated at W17.47tn) in 2023 and cut production (mainly for legacy products) for both DRAM and NAND. Micron and Kioxia have also mentioned plans to reduce investment by 50% y-y next year and cut production by 20% and 30%, respectively.
As a result, total 2023 shipment growth in the industry is forecast at only 9% (DRAM basis), including inventory. When excluding inventory, such figure would represent the first ever y-y decrease in production volume. Supply decline is predicted to concentrate in 2H23 rather than 1H23. We expect the shrinking of supply to lead to improved earnings at SK Hynix in 2H23, with OP likely to reach W18.6tn in 2024, alongside a recovery of smartphone demand and data center investment by hyperscalers in 2H23.
