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Burden becomes a blessing

Raise TP to W220,000; maintain Buy

We maintain our Buy rating on SK Hynix and raise our target price to W220,000 (from W200,000), as we revised up our operating profit forecasts for 2024 (W16.5tr) and 2025 (W24.1tr) by 43% and 18%, respectively, and lifted our target P/B from 2x to 2.2x.

We see operating profit surging through 2025, as we expect: 1) conventional DRAM prices to continue rising due to limited capacity from 2H24; and 2) Solidigm to strongly benefit from growing demand for enterprise SSDs from AI applications

For 1Q24, SK Hynix recorded revenue of W12.4tr (+9.9% QoQ) and operating profit of W2.9tr (+730% QoQ). The solid performance was driven by an overall increase in memory prices and a meaningful rebound in enterprise SSD demand. Reversals of provisions against inventory valuation losses (roughly W0.9tr; mainly for NAND) also had a positive effect.

Memory supply/demand outlook

For 2024, TrendForce forecasts DRAM bit growth at 16.9% and wafer capacity growth at 20.3%. This year’s additional DRAM wafer capacity is expected to reach 276,000 wpm. However, of this amount, 90,000 wpm should be allocated to HBM (total HBM capacity expansion: +80,000 wpm for Samsung Electronics, +90,000 wpm for SK Hynix, and +20,000 wpm for Micron), with DDR DRAM capacity growing a modest 10% YoY. As such, DRAM prices are likely to continue rising.

For NAND, TrendForce forecasts bit demand growth in 2024 at 16.5%, which is 2.4%p higher than the previous month’s forecast. Due to a surge in demand for high-capacity enterprise SSDs specialized for AI applications, the demand forecast has been raised by 10.4% in just one month. Regarding NAND supply, Solidigm is the only company that has raised its 2024 capacity forecast (+11.9%). We believe the increased capacity will mostly be used to meet demand for enterprise SSDs.

Once a burden, Solidigm is now playing a vital role

Since acquiring Solidigm in 2021, SK Hynix has faced challenges due to the rapid deterioration of the NAND market and escalating US-China tensions. However, we expect the rise of AI to usher in a dramatic recovery phase, with Solidigm playing a central role. Solidigm is the only company specializing in floating gate architecture (known for its advantages in realizing QLC technology). As such, we expect SK Hynix to be able to respond more swiftly than peers to a North American customer’s request for high-capacity SSD (60TB or more) samples.







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