[Edaily Reporter Kim Kyung-eun ] KB Securities, which had previously rated SK hynix(000660)’s upside potential highly, has lowered its target price by 16.7%. Although the firm raised its operating profit forecasts for this year and next, it lowered its fair value estimate to reflect increased stock price volatility and valuation concerns. However, it maintained its “Buy” rating, noting that the company’s record-breaking shareholder return program—totaling 100 trillion won—will serve as a turning point in resolving the stock’s undervaluation.

KB Securities announced on the 29th that it is lowering SK hynix’s target price from 4.2 million won to 3.5 million won. The price-to-book ratio (PBR) used to calculate the target price was lowered from 5.5x to 3.8x. The cost of equity (COE) was raised from 12.53% to 14.10%, and the assumption for the average return on equity (ROE) over the next three years was adjusted from 58.6% to 47.5%.

The downward revision of the target price is not related to a deterioration in earnings outlook. KB Securities raised its operating profit forecast for SK hynix this year by 4.5%, from 258.895 trillion won to 270.475 trillion won. It also raised its operating profit estimate for next year by 1.4%, from 388.811 trillion won to 394.447 trillion won.

The firm expects operating profit this year to increase by 473% year-over-year and to grow by another 46% next year. The analysis suggests that profitability will continue to improve due to rising semiconductor prices and expanded sales of High-Bandwidth Memory (HBM).

In fact, SK hynix’s third-quarter operating profit reached 83.3 trillion won, a 632% increase year-over-year, marking an all-time high. The operating profit margin reached 80%. This was driven by a 28% and 25% quarter-over-quarter increase in the average selling prices (ASPs) of DRAM and NAND flash, respectively.

Fourth-quarter operating profit is projected to reach 89 trillion won, a 364% increase year-over-year. This is because rising prices are expected to complement increased DRAM and NAND shipments, and the revenue share of HBM4—the next-generation HBM—is expected to surpass that of HBM3E.

The medium- to long-term demand outlook is also positive. SK hynix has allocated more than 50% of its total memory production capacity for 2027 and 2028 to five-year long-term supply agreements (LTAs). The company has already signed contracts with 14 major clients, including major global cloud service providers (CSPs). When the confirmed long-term supply contract volumes are combined with the volumes currently under negotiation with clients, it is estimated that virtually all of the planned DRAM and HBM production through 2029 has already been sold.

KB Securities assessed that the recent decline in SK hynix’s stock price has actually increased its appeal as an undervalued stock. As of the closing price on the 28th, the stock price had fallen by approximately 50% from its peak. Based on next year’s projected earnings, the price-to-earnings ratio (PER) stands at 3.1x, indicating an exceptionally undervalued market comparable to levels seen during the financial crisis.

In particular, the firm expects SK hynix’s announced 100 trillion won shareholder return policy to serve as a catalyst for a stock price rebound. SK hynix plans to allocate more than 60 trillion won to share buybacks and cancellations and more than 30 trillion won to cash dividends this year. The previously announced 40 trillion won share buyback was completed last week, and the shares are scheduled to be canceled shortly.

Kim Dong-won, Head of Research at KB Securities, analyzed, “Despite strong profit generation and the largest-ever shareholder return program, SK hynix’s stock price has fallen 50% from its peak, entering an exceptionally undervalued phase comparable to the financial crisis, with a P/E ratio of 3 based on 2027 earnings.” He went on to emphasize, “At this juncture, where record-breaking earnings coexist with undervaluation, the largest-ever shareholder return is expected to serve as a decisive turning point in resolving this historic undervaluation.”