[Click e-Stock] "SK Square, an Alternative to the Burden of Adding Hynix"

On October 15, Daishin Securities raised its target price for SK Square from 1.8 million won to 3.1 million won, citing the need to reduce the discount rate applied to the company as substitute demand for SK Hynix increases with the entry into a semiconductor supercycle. The investment rating was maintained at 'Buy'.

Since its spin-off and new listing in November 2021, SK Square has been trading at a discount rate ranging from 47% to 77%, with an average discount rate of 68%. However, as the market capitalization of SK Hynix, which accounts for 90% of SK Square's net asset value (NAV), has soared, analysts believe it is now necessary to reduce the discount rate applied to SK Square.

Kim Hoejae, a researcher at Daishin Securities, stated, "SK Square is currently only managing its existing portfolio without making new investments, so it is natural for its performance to closely mirror that of SK Hynix, the largest component of its portfolio. However, the sharp increase in SK Hynix's market capitalization has created a gap between SK Hynix's valuation and SK Square's discount rate." Accordingly, he lowered the discount rate applied to SK Square's target price calculation to 40%.

As SK Hynix's stock price surges, there are views that SK Square could serve as an alternative for investors who may find it burdensome to add SK Hynix to their portfolios. Kim noted, "SK Hynix's share of the KOSPI market cap has surpassed 10% for the first time ever, entering a valuation premium territory," and predicted, "Despite the entry into a semiconductor supercycle, substitute demand will arise from investors who feel burdened by directly including SK Hynix in their portfolios."

The company's shareholder return policy is also a point of anticipation. Kim explained, "SK Square has either repurchased and retired all of its own shares or paid out cash dividends totaling 510 billion won, equivalent to more than 30% of recurring dividend income and a portion of investment recovery proceeds for the period 2023 to 2025." He forecasted that a similar level of shareholder return policy would be implemented after 2026. Reflecting the inflow of 500 billion won from the remaining proceeds of the SK Shieldus sale, next year's shareholder return is estimated to be between 240 billion and 350 billion won.