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Exceptionally high earnings visibility

Raising 2026 earnings estimates and target valuation

We maintain our Buy rating on SK Hynix and raise our target price by 43.3% to W1,370,000 (from W956,000). We revised up our 2026 operating profit forecast by 4.6% to W148tr while also lifting our target P/B by 36.3% to 4.1x. With memory price momentum proving stronger than previously expected, we increased our 2026 DRAM and NAND ASP growth estimates by +3.1%p and +3.8%p, respectively. Thanks to operating leverage effects, price increases are translating directly into profit growth.

Our target multiple is based on the average 2026F P/B of global memory peers (excluding SanDisk). Dispersion in sector multiples has narrowed to about 1.5x, which we interpret as evidence that a broad consensus has formed on both the strength and sustainability of the current up-cycle. We believe that applying the peer average multiple is sufficiently supported by fundamentals, with SK Hynix likely to deliver the highest 2026F ROE in the sector (estimated at 70.3%; vs. peer average of 36.9%).

Fully translating price strength into earnings

For 4Q25, the company posted revenue of W32.8tr (+34.3% QoQ) and operating profit of W19.2tr (+68.7% QoQ), with the latter beating our estimate (W18.2tr). Bit growth came in at +1% for DRAM and +11% for NAND, with ASP rising 24% for DRAM and 33% for NAND. While these results slightly missed our estimates overall, profitability still exceeded expectations thanks to reduced fixed cost pressures from a higher price base.

For 1Q26, we forecast revenue at W44.9tr (+37% QoQ) and operating profit at W27.9tr (+46% QoQ). We estimate bit growth at only +2% for DRAM and -1% for NAND, affected by a high base following sustained recent increases. We expect ASP to rise 55% for DRAM and 33% for NAND. With constrained shipments likely to limit cost increases, the sharp rise in ASPs should drive margins higher; we forecast OP margin at 62%.

Meanwhile, capacity constraints and inventory drawdowns are likely to boost the share of long-term contracts, significantly enhancing memory price and earnings visibility. Regarding HBM4, management confirmed that mass production is proceeding as planned, using the same technology nodes and back-end processes already validated with HBM3E. For 2026, we look for revenue of W230tr (+136% YoY) and operating profit of W148tr (+213% YoY).

In addition to its regular annual DPS of W1,500, SK Hynix approved a special DPS of W1,500 for 4Q25 and a share cancellation plan (2.1% of issued shares; W12.2tr). Considering the company’s shareholder return policy (special returns of up to 50% of cumulative free cash flow over 2025?27) and our three-year cumulative free cash flow estimate of W224tr, the theoretical maximum dividend yield could reach 16% by end-2027 based on the current price.