Upgrade from 'BBB-' to 'BBB'
Outlook is 'Stable'
Global credit rating agency Standard & Poor's (S&P) has upgraded SK Hynix's credit rating by one notch. This is interpreted as a recognition of SK Hynix's market value, having secured leadership in high-bandwidth memory (HBM), an essential memory for the artificial intelligence (AI) era.
On the 7th (local time), S&P announced that it had raised SK Hynix's corporate credit rating from 'BBB-' to 'BBB'. This is the highest rating S&P has ever assigned to SK Hynix. The outlook remains 'Stable'.
In its report, S&P stated, "SK Hynix is expected to maintain an excellent competitive position in the memory semiconductor market," adding, "The company is leading the HBM market, which is recording high profitability and growth, and is expected to maintain its number one position based on superior technology and product competitiveness in the future."
It further assessed, "SK Hynix also holds a solid second place in the DRAM and NAND markets, which is positive for performance if the industry conditions rebound."
Additionally, S&P projected, "SK Hynix is expected to demonstrate significant profitability improvements during 2024?2025, driven by an increased proportion of high-margin HBM sales, improved production efficiency, and favorable pricing," explaining, "Under S&P's base scenario, the company's annual EBITDA (earnings before interest, taxes, depreciation, and amortization) for 2024?2025 is estimated to improve substantially to 34 trillion to 38 trillion KRW (EBITDA margin 56%) compared to 5.5 trillion KRW in 2023 (EBITDA margin 17%)."
It added, "The company is expected to generate strong free cash flow over the next two years, using some of it to reduce debt and maintain excellent credit metrics," and forecasted, "Although capital expenditures will significantly increase over the next one to two years to expand HBM production lines, this is based on already secured contract volumes, so related risks are low."
However, S&P pointed out that intensified competition is a potential risk factor.
S&P noted, "Samsung Electronics (AA-·Stable·A-1+), the global number one in the DRAM memory market, has reportedly not yet made significant breakthroughs in securing supply contracts with Nvidia, the largest HBM customer, despite considerable efforts," but judged, "The gap with competitors, including Samsung Electronics, is expected to narrow around the mid to late 2026."
Regarding the 'Stable' rating outlook, S&P stated, "This reflects S&P's view that SK Hynix will achieve significant sales and EBITDA improvements over the next two years, supported by its leading position in the HBM market and a rebound in the overall memory semiconductor industry," adding, "The company is expected to significantly reduce its leverage ratio from 4.7 times in 2023 to below 0.5 times by the end of 2024 by utilizing strong cash flows."
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