SK Hynix (000660.KS) is the world’s second-largest memory chipmaker. With factories in South Korea and China and some 30 sales offices in more than 15 countries the company offers dynamic random access memory (DRAM) and flash memory chips (NAND) as well as CMOS image sensors (CIS) to a wide range of distinguished customers globally. Apple is the biggest customer, accounting for more than 10 percent of SK Hynix’s sales.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”]
SK Hynix’s products are used in mobile phones, PCs, digital TVs and cameras, set-top boxes, DVD players, printers, notebooks, and many other electronic products. Together with Samsung Electronics, the two Korean companies control more than two-thirds of the DRAM market. The US is SK Hynix largest and fastest growing market, accounting for 37 percent of the sales, followed by China with 33 percent. The company is currently bidding for Toshiba’s NAND division to boost its already 15 percent share in this market to more than 30 percent. The success of the acquisition, however, remains uncertain due to regulatory concerns from China.
SK Hynix, which was established in 1983 by the Hyundai group, is headquartered in Icheon, South Korea. The shares are listed on Korea’s stock exchange since 1996. SK Hynix shares can also be traded in Luxembourg and the US. Major shareholder is SK Telecom, the third-largest conglomerate in Korea, with an ownership of around 20 percent, followed by Korea’s National Pension Service with an ownership of about 10 percent. 77 percent of the shares are in public hand.
With a workforce of more than 27,000 employees, SK Hynix reported revenues of 30tr KRW (28bn USD) and profits before tax of 13tr KRW (13bn USD) in 2017. This is an increase of 75 percent and 318 percent respectively compared to the same period a year ago. In 2016, revenues and profits decreased 9 and 39 percent respectively. The operating margin of 46 percent is well above the industry average. SK Hynix’s cash reserves increased by 381 percent to 3tr KRW (2.8bn USD) at the end of 2017. The company shows a solid balance sheet with good profitability and financial strength. The equity ratio is at strong 74 percent and the gearing, defined here as total liabilities to total equity, at 34 percent only. Moody’s has upgraded SH Hynix’s rating last November to Baa3 with a positive outlook. Next earning results are expected by the end of this months.
SK Hynix’s shares are in an uptrend since May 2016 and more than tripled in value since, five percent increase alone this year. The company is priced at only five times earnings. Shares trade 1.7 times book value and at four times cash flow. The latest dividend yielded around one percent. The majority of covering analysts rate the company as an outperformer.
SK Hynix shows a strong financial position with excellent profitability and financial strength. The valuation is low compared to industry peers. The industry outlook remains positive with an expected growth rate for memory chips of 14 percent in 2018 according to Gartner. Demand for more firepower in internet-connected devices and especially in servers of data centers are seen to drive the profits in 2018.
SK Hynix is well positioned in a strong competitive environment. Revenues and profits grew by more than 20 percent over the last three years. Assuming a stable global economy, we expect the share price to increase at least 25 percent until the end of this year.
AIS Rating: ★★★★☆
| 2013 | 2014 | 2015 | 2016 | 2017 | |
|---|---|---|---|---|---|
| EPS (KRW) | 4045 | 5842 | 6002 | 4184 | 15072 |
| Change | 1836% | 44% | 3% | -30% | 260% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | LIAB./ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 5 | 13 | 1.7 | 4 | 74% | 38% | 34% | 1.2% |
* Equity / Total Assets, ** Total Liabilities / Equity
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