UBS Raises Target on SK Hynix, Bullish on Long-Term Outlook

In a recent analyst report, UBS increased its price target for SK Hynix from 3.0 million to 3.2 million won, maintaining a ‘Buy’ rating. The upgrade reflects enhanced confidence in the company's earnings visibility, driven by secured long-term agreements and its commanding position in the high-bandwidth memory (HBM) market.

Long-Term Agreements Provide Earnings Stability

The report highlights SK Hynix's progress in securing revised long-term agreements (LTAs) with hyperscale data center clients for DDR5 and NAND Flash products. These multi-year contracts, often exceeding five years, lock in both volume and pricing for approximately 60-70% of anticipated supply. This shift towards a more predictable revenue model significantly de-risks future earnings and forms a cornerstone of the valuation upgrade.

HBM: From Growth Driver to Core Profit Center

SK Hynix continues to execute strongly in the critical HBM segment. The report notes the company began ramping shipments of its HBM4 products for next-generation AI platforms (Rubin) in Q2, indicating final design qualification. UBS expects HBM to constitute a larger portion of SK Hynix's DRAM revenue mix compared to peers over the long term.

  • Revenue Mix Shift: HBM's contribution to total DRAM revenue is projected to surge from 15% in 2026 to 58% by 2030.
  • Pricing Upside: Potential further increases in HBM average selling prices could provide an additional boost to profits in 2027.

Memory Pricing Recovery Fuels Higher Profit Forecasts

UBS anticipates continued price increases for memory chips in the second half of 2026. The specific quarterly forecasts are:

  • DRAM: Q2 average selling price (ASP) up 43% quarter-on-quarter (QoQ), Q3 up 21% QoQ, Q4 up 13% QoQ.
  • NAND Flash: Q2 blended ASP up 43% QoQ, Q3 up 25% QoQ, Q4 up 10% QoQ.

Factoring in the stability from LTAs and HBM growth, UBS raised its operating profit forecasts for SK Hynix: 2024 forecast lifted by 7% to 327 trillion won; 2025 and 2026 forecasts each increased by 12% to 623 trillion won and 667 trillion won, respectively.

Shareholder Returns Expected to Accelerate

The report concludes by noting that SK Hynix's shareholder return policy is expected to strengthen, with a share buyback program likely to commence following its U.S. ADR listing and potentially accelerate over time.