SK Hynix stock bound for north due to jump in earnings

2017.07.10 13:51:14 | 2017.07.10 15:36:44

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Stock outlook for SK Hynix Inc., the world’s second largest dynamic random access memory (DRAM) chipmaker, remains bright even after its surge of 49 percent so far this year as it still has sufficient room to grow because of the faster pace in expansion in its profit from chip sales.

According to estimates compiled by data provider FnGuide on Sunday, SK Hynix would have earned nearly 3 trillion won ($2.6 billion) from operation in the second quarter ended June, outperforming 2.47 trillion won in the previous quarter. The figure could be higher, given Samsung Electronics’ guidance of 14 trillion won in the second-quarter profit that beat estimates by nearly 1 trillion won.

Full 2017 earnings estimates compiled by Eugene Investment & Securities at the request of Maeil Business Newspaper put the chipmaker’s profit at 12.8 trillion won, humble compared with 33 trillion won estimated for Samsung Electronics, but up 291 percent from its year-ago performance.

It would underperform foreign semiconductor vendors like Intel Corp. estimated to earn 20 trillion won and Taiwan Semiconductor Manufacturing Company (TSMC) 14.9 trillion won this year.

But the company outpaces Samsung and others in profit margin as its primary revenue comes from DRAM chips for PC modules and mobile devices whose prices and demand have been climbing up from latter half of last year from tight supply.

The company’s profit margin against revenue is estimated at 44.6 percent this year, compared with 23 percent of Samsung Electronics that also makes set products like smartphones and home appliances. In semiconductor alone, Samsung’s operating margin is estimated at 44 percent, down from nearly 50 percent last year.

Despite staggering gain this year, SK Hynix stock remains undervalued compared with its competitors. The price-earnings ratio measuring the earnings per share for SK Hynix this year is projected at 4.2 based on its profit estimate for this year, hovering far below 8.4 for Samsung Electronics, 11.8 for Intel and 15.8 for TSMC.

Shares of SK Hynix ended Monday at 67,300 won, up 700 won or 1.05 percent from the previous session.

SK Hynix’s profitability sharply improved this year because prices of DRAM have gained faster than those of flash memory, and memory remain far more lucrative than non-memory due to the monopolistic nature of the market. Samsung Electronics and SK Hynix make up 75 percent of the DRAM market.

DRAM is responsible for 77 percent of SK Hynix’s profit and 58 percent of Samsung Electronics. SK Hynix has been shifting production capacity to NAND flash to diversify its portfolio away from DRAM. NAND flash in nonvolatile memory storage medium that does not require power to retain data makes up 25 percent of SK Hynix’s revenue. SK Hynix joined the winning consortium bidding for Toshiba’s NAND flash memory business.

By Moon Il-ho

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