Due to having secured stable orders from Nvidia and slow progress in competitors' HBM3e technology, coupled with SK Hynix's plan to lead the large-scale shipment of 12-layer HBM products in the fourth quarter, Bank of America estimates that by 2025, SK Hynix may occupy nearly 60% of the global market share, with sales expected to increase by 38% to reach $15.8 billion, benefiting from the HBM business with an operating margin exceeding 60%. Bank of America has raised SK Hynix's target stock price from 0.24 million won to 0.28 million won.
On October 11th, Bank of America released research reports in Eastern Time, bullish on sk hynix's HBM (High Bandwidth Memory) business prospects, with a 'buy' rating on sk hynix, raising its target stock price from 240,000 to 280,000 Korean won.
There are five main reasons:
Market share growth: sk hynix is gradually taking over Samsung Electronics' share in the HBM market, especially as Samsung's HBM3e technology advances slowly, giving hynix an opportunity to catch up.
Significant sales growth: In the third and fourth quarters of 2024, sk hynix's HBM sales are expected to reach 2.9 billion and 3.5 billion USD respectively, accounting for 32% and 38% of its DRAM sales, much higher than the 15% and 20% in the first and second quarters.
Leading technological advantage: sk hynix plans to be the first to mass produce 12-layer HBM products in the mid-fourth quarter of 2024, leading competitors and further solidifying its market position.
Supported by high profit margins: hynix's HBM products have extremely high profit margins, with operating profit margins (OPM) expected to exceed 60%, bringing considerable earnings to the company.
Stable demand and orders: SK Hynix has secured stable orders from Nvidia, with a significant increase in shipments expected in 2025, and prices will remain stable. Although competitors may increase the supply of HBM3e, SK Hynix's product quality has received$Microsoft (MSFT.US)$and $Meta Platforms (META.US)$ With the high recognition of large US companies, market demand will not be affected.
Bank of America believes that SK Hynix's HBM business is rapidly expanding, expecting SK Hynix's HBM sales to increase from $2.3 billion in 2023 (14% of DRAM sales) to $9.2 billion and $15.8 billion in 2024 and 2025 (estimated to account for 60% of the global market share). With the expected increase in sales volume and prices, HBM sales in 2025 are expected to be 38% higher than previously anticipated.
Hynix's profit and free cash flow prospects are strong.
Bank of America points out that due to its high-profit-margin HBM business (with an operating profit margin exceeding 60%), SK Hynix's profit and cash flow prospects are very optimistic. It is expected that in the third and fourth quarters of 2024, SK Hynix's operating profit will reach 6.6 trillion won and 6.7 trillion won, respectively. In the first and second quarters of 2025, profits are expected to be 6.1 trillion won and 6 trillion won.
This helps to offset the risks of traditional DRAM memory business because the cost competitiveness at Hynix's 1a and 1b technology nodes has been validated, enabling the traditional DRAM business to achieve an operating profit margin of 30-40% even in the case of soft price trends.
Looking at the whole year, Hynix's operating profit in 2025 is expected to increase to 28 trillion won, surpassing the historical high record of 21 trillion won set in 2018, and higher than the projected profit level of 22 trillion won in 2024.
In addition, Bank of America stated that the company's free cash flow (FCF) will significantly improve. During the period of 2024-2025, SK Hynix's free cash flow is expected to exceed 10 trillion Korean won annually. Initially, these funds will be used to repay debt, but after debt repayment, Bank of America expects the company to increase dividends and engage in share buybacks, aligning with South Korea's "value enhancement" plan.
The stock price target has been raised to 0.28 million Korean won.
Bank of America stated that SK hynix's HBM business growth will be the main driver of its stock price increase. Although the EPS forecast for 2024-2025 is only slightly raised by less than 10% due to DRAM price pressure, Bank of America expects SK hynix's EPS to grow by 30% in 2025.
Based on hynix's advantage in the HBM business and the profit growth expectation in 2025, Bank of America maintained a 'buy' rating on SK hynix and raised the P/B ratio of SK hynix in 2025 from 1.9 times to 2.2 times, increasing the target stock price from 0.24 million Korean won to 0.28 million Korean won.
Editor/Rocky
