[Edaily Reporter Shin Ha-yeon ] On the 7th, IBK Investment & Securities projected that SK hynix(000660)will maintain high profitability due to expanding memory demand driven by artificial intelligence (AI) growth and limited supply increases. Combined with large-scale shareholder returns, the firm believes the current stock price is significantly undervalued. It maintained its “Buy” rating and target price of 4 million won.

Kim Un-ho, an analyst at IBK Investment & Securities, stated, “We expect demand for memory to continue rising due to the growth of AI models, while supply growth is expected to remain limited for a considerable period.” He added, “As a result, volatility in DRAM and NAND prices at current levels is low, and the company will be able to generate stable cash flow while maintaining high profitability.”

SK hynix’s third-quarter revenue is projected at 95.8 trillion won, with operating profit at 75.1 trillion won. The operating profit margin is expected to rise by 2.1 percentage points from the previous quarter to 78.4%. Compared to previous estimates, revenue and operating profit forecasts have been revised downward by 1.9% and 5.6%, respectively. This reflects the impact of the weakening won-dollar exchange rate.

By business segment, DRAM revenue is projected at 73.1 trillion won, with operating profit at 59.2 trillion won. The forecast for the average selling price (ASP) of DRAM has been revised upward from previous estimates. The projected growth rate for DRAM ASP in the third quarter has been raised from 16% to 21%, while bit growth remains unchanged at 10%. Analyst Kim explained, “This reflects price increases for some products,” but added, “The upward revision to the ASP is not expected to have a significant impact on profitability.”

NAND is also expected to maintain high profitability. Third-quarter NAND revenue is estimated at 22.4 trillion won, with operating profit at 15.9 trillion won. The operating profit margin is projected to be around 71.0%. However, the forecast for the NAND ASP growth rate was lowered from 20% to 18%.

The firm projected that the upward trend in earnings would accelerate further in the fourth quarter. IBK Investment & Securities estimated SK hynix’s fourth-quarter revenue at 120.3 trillion won and operating profit at 96.6 trillion won. The operating profit margin is expected to rise to 80.3%. The fourth-quarter operating profit margins for DRAM and NAND were forecast at 83.0% and 72.0%, respectively.

Accordingly, the firm projected that this year’s full-year revenue would reach 347.993 trillion won and operating profit 269.887 trillion won, representing year-over-year increases of 258.2% and 471.7%, respectively. The company is expected to continue its growth momentum next year, recording revenue of 543.705 trillion won and operating profit of 443.620 trillion won. The projected operating profit margin for next year is 81.6%.

In addition to earnings, large-scale shareholder returns were cited as a factor enhancing the company’s investment appeal. SK hynix unveiled a new shareholder return policy last August. The core of the policy is to allocate at least 50% of free cash flow (FCF) minus capital expenditures (CAPEX) to shareholder returns.

Analyst Kim stated, “We estimate this will amount to at least 90 trillion won by 2026,” adding, “The company is planning shareholder returns centered on share buybacks, and we expect additional share buybacks to take place in the fourth quarter, in addition to the 40 trillion won already being executed.” He continued, “While some dividends will be paid, share buybacks are expected to be the main focus.”

Based on its massive cash generation capacity, the company’s financial structure is also expected to improve rapidly. IBK Investment & Securities estimated SK hynix’s cash flow from operating activities this year at 220.596 trillion won. It projected cash and cash equivalents at the end of this year to reach 115.453 trillion won, with net cash standing at 118.319 trillion won. The firm projected that cash and cash equivalents would increase to 392.481 trillion won next year.

The firm also emphasized the stock’s attractive valuation. SK hynix’s projected price-to-earnings ratio (P/E ratio) for this year is 5.0x, and 3.8x for next year. Analyst Kim explained, “We believe the current stock price is significantly undervalued,” adding that the target price was calculated by applying a P/E ratio of 9x to the 12-month forward earnings per share (EPS) of 446,092 won.

He added, “We maintain a ‘Buy’ rating on SK hynix,” citing expanding AI memory demand, limited supply growth, high profitability, and the potential for continued large-scale shareholder returns as key investment drivers.