[Click eStock] "SK Hynix, Focus on Momentum Over Short-Term Earnings... Rebound Expected in Q1 Next Year"

[Asia Economy Reporter Lee Myunghwan] Hyundai Motor Securities announced on the 28th that it maintains a buy rating and a target price of 123,000 KRW for SK Hynix. It also predicted that SK Hynix will rebound in the first quarter of next year, making a bottom-fishing strategy effective.

Hyundai Motor Securities forecasted that the company's sales and operating profit for the third quarter of this year will be 12.6 trillion KRW and 2.5 trillion KRW, respectively. These figures are similar to previous estimates. Although the growth rates and average selling prices (ASP) of DRAM and NAND are expected to fall short of estimates, the positive effect of exchange rates is expected to result in earnings close to projections.

Although inventories of both DRAM and NAND are increasing, Hyundai Motor Securities expects that the inventories held at the end of the quarter will be depleted. However, it pointed out that inventories of North American cloud service providers and Chinese smartphone customers have not significantly decreased, so SK Hynix's inventory is expected to continue rising.

Hyundai Motor Securities diagnosed that whether there will be a meaningful reduction in inventory will be the most important point to watch for exploring the bottom of the semiconductor industry in the future. Generally, smartphone inventories are divided into in-house component inventories and distributed finished product inventories, and Chinese companies hold distributed finished product inventories that exceed component inventories along with in-house component inventories, according to Hyundai Motor Securities' analysis.

Hyundai Motor Securities advised to use the current decline in performance and downward revision of earnings forecasts due to decreased semiconductor demand as an opportunity to find the bottom. It viewed the inventory reduction and accumulation of Chinese smartphone manufacturers as important for smartphones, a key pillar of the DRAM industry. For cloud service provider (CSP) customers, new data center investments and replacement of existing servers are important, according to Hyundai Motor Securities' analysis.

Researcher Noh Geunchang of Hyundai Motor Securities said, "Chinese smartphone customers are expected to resume inventory accumulation before the 2023 Lunar New Year, and CSPs will have momentum at the end of the first quarter of next year with the launch of 'Sapphire Rapids' (Intel's new server CPU)," adding, "In conclusion, a stock price rebound is expected from the first quarter of 2023."