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2026-08-21 12:42:51 HSBC Global Investment Research published a report reiterating its positive view on SK Hynix, believing it is the top pick among S Korea tech stocks. The broker believes the company will become even more attractive, not only because average selling price growth is expected to strengthen further in 2H26, but also due to its increasingly aggressive shareholder return policy. SK Hynix announced a share buyback and cancellation plan of around KRW40 trillion over the next three months, equivalent to 3.3% of issued common shares, while highlighting several positive measures: 1) at least 50% of free cash flow will be returned to shareholders during 2025-2027, compared with the previous guidance of "within 50% of free cash flow"; 2) consideration of further dividend increases on top of committed cash dividends; 3) approximately KRW4 trillion of potential capital reduction dividends announced through March 2027. Management noted that the share price is significantly below intrinsic value and prefers share buybacks as the return method, while treasury share purchases for employee incentives will be completely separate from this plan. The broker views this as a positive step toward more shareholder-friendly policies following the ADR listing. Based on guidance, the broker assumes total free cash flow of around KRW401 trillion during 2025-2027, of which at least KRW200 trillion, or 50% of free cash flow, will be returned to shareholders, including KRW37 trillion in cash dividends and KRW163 trillion in buybacks and cancellations. The broker expects SK Hynix's 3Q operating profit to rise 30% QoQ to KRW79 trillion, up 591% YoY, with revenue of KRW101 trillion, up 312% YoY, driven by 20% and 13% QoQ increases in DRAM and NAND prices respectively, as well as an 11% QoQ increase in DRAM shipments. Mixed average selling price growth is expected to outperform the broader market. Key catalysts include HBM price hikes and additional upside from HBM4, stronger SO-CAMM2 demand related to ARM architecture CPUs, and more three- to five-year long-term agreements improving visibility. The broker maintained its Buy rating on SK Hynix's Korean shares with an unchanged TP of KRW3.7 million, based on a target price-to-book ratio of 3.4x, representing a 20% premium to the historical peak of 2.8x during 2009-2011, applied to the average book value per share for 2027/2028. The TP implies around 147% upside potential. Even at the TP level, the forecast price-to-earnings ratio would only be 8x the average EPS for 2027/2028. (ad/u)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |