SK hynix is looking attractive to investors given favorable market circumstances and consistent efforts to migrate to thinner, advanced technologies.

The company, which is the world's second-biggest memory chip supplier and a critical part of SK Group in terms of profit contribution, is expected to improve earnings in the latter half of this year, leading research firms said, Sunday.

They have no doubt SK hynix will benefit from improving demand for dynamic random access memory (DRAM) and flash memory chips, which will keep prices high.

"Driven by inventory-build cycles and increasing content needs for DRAM and NAND in both smartphones and PCs, we continue to believe SK hynix is undervalued at these levels," Bernstein Research's senior analyst Mark C. Newman said. "Therefore, we maintain our ‘outperform' view on SK and set 36,000 won as our target."

SK hynix shares ended at 34,800 won on the Seoul bourse last week.

Credit Suisse, another major investment bank, also had a favorable outlook on SK hynix stocks for the latter half, expecting larger cost falls and increased shipments to power the company's earnings.

A tight supply of memory chips provides an opportunity for industry leaders such as SK hynix to increase revenue. And moves by leading handset vendors for larger chip capacity have been cited as another positive factor for the SK affiliate, which has greater exposure in the DRAM business.

Hanwha Investment and Daishin Investment said SK hynix has been accelerating efforts to cut production of unprofitable legacy DRAM chips, as the increasing built-in chip capacity for the latest smartphones ? including the new iPhones ? will further strengthen demand for DRAM-outfitted devices in the third quarter.

"New Apple iOS and Android-powered digital devices will have expanded storage capacity in line with for faster data processing," said a senior fund manager at a U.S.-based investment bank located in Seoul, asking not to be unidentified.

But investors are worried about the pace of the company's move to DRAM chips with the finer 20-nanometer processing technology after it set a 40 percent target for the end of this year, which is a bit later than expected.

But in NAND chips, demand from Apple is expected to remain strong and demand for SK's NAND to incorporate solid-state drives (SSD), the next storage device following hard-disk drives (HDD), will also hit markets this year.

"While SK hynix paid out 8.8 percent of its net income in shareholder returns in 2015, the goal remains to increase the payout to 20 percent within two to three years," Newman said.

By: DocMemory
Copyright © 2023 CST, Inc. All Rights Reserved