SK Hynix (.KS)_ 4Q24 Preview_ Likely Better-than-Expected 4Q Earnings thanks to DRAM ASP Upside from HBM3E

Key Points Industry/Company Involved: - SK Hynix (000660.KS) Core Views and Evidence: - 4Q24E Earnings Outlook: SK Hynix is expected to report better-than-expected 4Q24E operating profit (OP) of +W8.3tr, driven by robust HBM3E demand growth and a 4Q DRAM ASP increase of +9% QoQ. [doc id='1'] - DRAM ASP Growth: Despite a projected deceleration in overall DRAM industry ASP growth to -7% QoQ in 1Q25E, Hynix's DRAM ASP is expected to remain intact, with flat growth in 1Q25E. [doc id='3'] - HBM3E & HBM4 Leadership: Hynix is expected to maintain its leadership in the HBM market due to its 1bnm and advanced MR-MUF technology in HBM3E & HBM4 for high-end AI applications. [doc id='1'] - 2025E Outlook: SK Hynix's 2025E OP is forecasted to be W39.4tr, higher than the market consensus of W31.8tr, driven by a HBM mix exceeding 50% of total DRAM revenue. [doc id='4'] - Strategic Decision: Hynix's decision to use 1bnm & advanced MR-MUF technology for HBM4 will solidify its HBM dominance and expedite the launch schedule of HBM4 in 2Q25E and mass production in 2H25E. [doc id='4'] - Buy Rating: Citi maintains a Buy rating on SK Hynix, expecting the company to stay resilient amid challenging pricing conditions in the conventional memory market. [doc id='5'] Other Important Points: - Market Consensus: The market consensus for 4Q24E OP was W7.9tr, lower than the expected W8.3tr. [doc id='2'] - NAND ASP Decline: Despite a projected +9% QoQ growth in NAND B/G in 4Q24E, NAND ASP is expected to fall -7% QoQ due to weak mobile NAND demand. [doc id='2'] - 2025E Valuation: Citi's target price for SK Hynix is W340,000, based on a 2.5x 25E P/B and a 30% premium to the stock's historical average PB during a structural demand growth phase. [doc id='19'] - Risks: Downside risks include a downturn in DRAM demand, weaker NAND demand than forecasts, and a collapse in global consumption. [doc id='20'] - Investment Strategy: Citi believes SK Hynix is well positioned to benefit from the DRAM market recovery driven by limited supply growth and its technology leadership in DRAM. [doc id='18'] - Valuation: The target price is derived by applying 2.5x 25E P/B, obtained by applying a 30% premium to the stock's historical average PB during a structural demand growth phase. [doc id='19'] - Risks: Downside risks include a downturn in DRAM demand, weaker NAND demand than forecasts, and a collapse in global consumption. [doc id='20']