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Stay the course despite elevated uncertainty

Oversold territory; maintain Buy rating and TP

Since the outbreak of the Iran war, a series of concerns―including potential dilution from ADR issuance, worries over a slowdown in memory demand tied to Google’s TurboQuant, and possible delays to a key customer’s next-generation GPU model―have overlapped, sharply driving down shares of SK Hynix. The stock has fallen 26.6% from its peak and 23.6% from the recent high. However, we believe the impact on fundamentals remains limited and thus maintain our Buy rating and target price of W1,540,000.

Our operating profit estimates for 1Q26 (W36.7tr) and 2026 (W231tr) remain unchanged. While peer multiples have declined, we do not believe this warrants a mechanical adjustment to our target price. The sector as a whole appears oversold relative to fundamentals, suggesting that current peer multiples do not represent fair value.

In contrast to the sharp fall in share prices, memory prices remain notably resilient. The decline in spot prices for 16Gb DRAM from recent peaks has been limited to 7% for DDR4 and 5% for DDR5, suggesting that a demand shock has yet to materialize despite market fears. In fact, the March contract price for 16Gb DDR5 DRAM, announced on Mar. 31, came in at US$31―3.3% above the estimate from two weeks ago (US$30).

It is encouraging that the contract price exceeded expectations despite wartime uncertainties. Going forward, we expect pricing to be supported by: 1) the structural trend toward higher memory content per device as low-end smartphones are phased out; and 2) latent demand stemming from memory inventory depletion at consumer IT manufacturers.

We even see room for further price increases, as big tech companies appear to have sufficient capacity to absorb higher prices. Cloud customers already pay service prices that imply effective DRAM prices of up to US$18/Gb (assuming a three-year useful life), well above current contract prices of around US$2.1/Gb.

Following the sharp share price decline on Mar. 31, SK Hynix’s 12-month forward P/B has fallen to 1.5x. While quarterly ROE could gradually decline to around 15% (from 30% currently) as cash accumulates, the stock remains clearly undervalued even allowing for a moderation in ROE. For reference, TSMC has maintained an ROE of around 7% with a historical average P/B of 3.6x.

While we do not dismiss uncertainties in the current environment, we note that near-term earnings visibility remains strong, and memory prices are holding up well. As such, we believe it is premature to revise our stance.