[Edaily Reporter Park Sun-Yeop ] SK hynix(000660) With SK Hynix American Depositary Receipts (ADRs) trading at a premium of about 33% over the domestic shares, analysts suggest that the price gap between the two markets is more likely to narrow through an increase in the domestic share price rather than a decline in the ADR price. Although the mutual conversion process between the domestic shares and ADRs is set to begin on the 29th, the actual pace at which the price gap narrows will depend on the scale of new ADR issuance.
Lee Jeong-bin, an analyst at Shinhan Investment Securities, stated in a report on the 23rd, “The SK hynix ADR premium is technically in a high range, while the valuation of the domestic underlying shares is in a historically undervalued range,” adding, “Considering past cases, attention should be paid to the possibility of price transfer to the underlying shares.”

SK hynix ADRs began trading at a level approximately 3% higher than the domestic parent stock’s equivalent price immediately after listing, but the premium widened to 52% within a short period. This was due to strong interest from U.S. investors being concentrated on the limited supply of ADRs in circulation, coupled with the fact that arbitrage trading between the parent stock and ADRs did not proceed smoothly.
While the ADR price rose rapidly, the domestic underlying stock performed relatively weakly. Since the ADR listing, foreign investors have continued to net sell in the domestic market, while retail and institutional investors have absorbed a significant portion of these sales. This suggests that trades involving the simultaneous purchase of ADRs in the U.S. market and the sale of domestic underlying shares may have contributed to the widening price differential.
Although the premium has since narrowed to 33.2%, it remains higher than that of Taiwan’s TSMC, which serves as a benchmark. TSMC ADRs have maintained an average premium of approximately 13% relative to the underlying shares since 1998, with an average of 12.6% over the past five years and 17.3% over the past three years.
Citing the TSMC case, the analyst noted that even if mutual conversion between the underlying shares and ADRs is possible, the premium will not disappear entirely. This is because the supply of new ADRs is limited by operational procedures and approval conditions, and if the market cannot respond immediately to changes in demand, a certain level of price disparity may persist for an extended period.
On the 29th, 17.79 million shares underlying the ADRs will be additionally listed on the domestic market, and applications for mutual conversion between domestic shares and ADRs will begin. The additional listing volume represents approximately 2.5% of the total issued shares. However, these shares were deposited for the purpose of issuing ADRs, so the number of shares in domestic circulation will not increase immediately.
Once mutual conversion begins, arbitrage trading will become possible: buying domestic shares, converting them into ADRs, and then selling the ADRs on the U.S. market. If, as is currently the case, the ADR premium exceeds the conversion costs, buying demand for domestic shares will increase, and the supply of ADRs in the U.S. market may also rise.
However, the actual conversion requires administrative procedures such as filing an application with the Korea Securities Depository, verification of issuance limits by Citibank, and foreign exchange reporting. While there is approximately 22.5% capacity for additional issuance based on U.S. Securities and Exchange Commission (SEC) registration standards, the actual supply depends on the operations and approvals of the depository institution.
The analyst explained, “The 29th is not so much the point at which the premium normalization is confirmed, but rather the first turning point to gauge the actual market reaction to ADR supply,” adding, “It is difficult to conclude that the premium will immediately narrow simply because the mutual conversion process has begun.”
An analysis of seven companies—TSMC, UMC, ASML, Sony, POSCO Holdings, KTCorporation, and SKTelecom—that have listed ADRs in the U.S. in the past revealed that after their ADR premiums entered the top 10% of the historical distribution, the underlying shares recorded returns that were, on average, 2.81 percentage points higher than the market over 20 trading days and 4.05 percentage points higher over 60 trading days.
Even as the price differential narrowed, the impact of the underlying stock’s rise was greater than that of the ADR’s decline. Within the top 10% of the premium range, 48.8% of instances where the price differential narrowed were driven by the underlying stock’s rise, while ADR declines accounted for only 14.2%.
Analysts note that SK hynix’s current 12-month forward price-to-earnings ratio (P/E) stands at approximately 4.7x, placing it in a historically undervalued range. The analyst stated, “The ADR premium is likely to remain at a certain level rather than converging to zero,” adding, “However, in periods when the premium becomes extremely high, gains in the underlying stock may account for a significant portion of the narrowing price gap.”