Key Morningstar Metrics for SK Hynix
- : USD 160Fair Value Estimate
- : ★★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : Very HighMorningstar Uncertainty Rating
SK Hynix SKHY ADRs will move from the temporary ticker SKHYV to its permanent one, SKHY, on July 13 as it begins regular trading on the Nasdaq. Each ADR will represent one-tenth of the Korean share.
The bottom line: We keep our fair value estimate per ADR of USD 160 and maintain that ADRs are fairly valued on longer-term cyclicality risks expounded previously. SK Hynix has earmarked the listing proceeds of KRW 40 trillion for upcoming fab investments, but we do not see this as the main purpose of the offering.
- We believe the main purpose of the offering is to lift valuations, given that Korean memory players’ multiples have historically lagged US peers, rather than an urgent need for funds. We do not see SK Hynix running into any issues in terms of funding its investments with cash only.
- Our current forecasts for SK Hynix’s EBITDA generation in 2026 and 2027 stand at KRW 317 trillion and KRW 474 trillion, respectively, far above its raise. In our view, this raise is a token contribution to capacity investments and is the most appropriate use of funds.
Coming up: Apart from highly unpredictable earnings trajectories expected from memory chipmakers, we foresee tremendous volatility in both SK Hynix’s ADRs and Korean shares continuing, and maintain our Very High Morningstar Uncertainty Rating for the company.
- ADRs will be one-way fungible, effectively limiting arbitrage. Such share class structures tend to result in ADRs trading at a premium to domestic shares. That said, we expect near-term price discovery to continue for SK Hynix’s ADRs, given the limited trading history to identify appropriate spreads.
- We believe the unprecedented levels of retail participation and margin taken on SK Hynix shares exacerbate volatility. Shares are down 34% from their peak, and margin calls throughout this drawdown will likely amplify selling as maintenance margins increasingly fail to be covered.
