Company Overview

SK Hynix Inc, formerly Hyundai Electronics Industries Co. Limited, is a semiconductor company established in South Korea in October 15, 1949. SK Hynix produces and distributes memory chips for mobile, networking, server, personal computer and automotive applications. The company’s shares are traded on the Korea Exchange while its depositary receipts trade on the Luxembourg Stock Exchange.

SK Hynix’s production facilities are sited in South Korea and China. The facilities are supported by robust semiconductor research and development centres in South Korea, Italy, U.S.A., Taiwan, Belarus, China, Poland, Canada and Mexico.

The company continues to invest in technology to maintain its market share in the memory chips business and develop leadership position in the artificial intelligence (AI) memory business. Research & Development (R&D) cost stood at ₩4.4 trillion in 2024 (2023: ₩3.8 trillion).

SK Square Co. Limited is the major shareholder of SK Hynix with 20.1% equity stake in the company. Kwak Noh-Jung, is the president and chief executive officer.

Investment Thesis

SK Hynix is one of the leading makers of DRAM and NAND flash memory chips in the world. The company has been at the forefront of technological innovation, chalking up lots of firsts in the memory market, including the development of HBM4 in 2025. HBM4 (High Bandwidth Memory) is a next generation memory product with improved bandwidth and power efficiency for ultra-high performance AI.

There is strong demand for smartphones, servers, personal computers and AI products. SK Hynix is well-positioned to meet the demand for AI memory products having developed its technological competence in the semiconductor business for over four decades. It has the capacity to provide custom-made DRAM and NAND flash products to satisfy the needs of its various customers.

The U.S.A. remains the major market for the company’s products followed by China. On average, South Korea has produced 4.4% of revenue in the last ten years. U.S.A. and China have generated 41.8% and 33.4% of total revenue respectively. Also, sales revenue from the U.S.A. has grown at a 3-Year Compound Annual Growth Rate (CAGR) of 34.8%, while the revenue from China has risen by 119.8% over the past three years.

SK Hynix is a profitable company with regular dividend payment. The company has delivered a 10-year EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) margin of 24.5%. Operating profit margin averaged 22.6% and Profit After Tax margin (PAT) 16.6%. The total assets are rising and the company’s debt has become manageable.

Valuation

SK Hynix has a Book Value Per Share of ₩107,280 in 2024, up by 38% year-on-year. Adjusted Earnings Power Value (EPV) of the company is ₩200,668. A share of the company should trade between ₩290,581.02 and ₩420,387.86.

Financial Overview

DRAM and NAND Flash memory chips are responsible for the bulk of the revenue of SK Hynix. DRAM and NAND Flash sales have generated, on average, 95.9% of the company’s total revenue in the last ten years. Revenue of SK Hynix jumped by 102% from ₩32.8 trillion in 2023 to ₩66.2 trillion in 2024. DRAM chips produced ₩44.7 trillion (2023: ₩20.8 trillion) or 67.6% of total revenue (2023: 63.4% of total revenue). NAND Flash sale was ₩19.3 trillion which represented 29.1% of total sales (2023: ₩9.7 trillion or 29.5% of total sales).

The revenue from the USA, its major market, leaped by 172.7% year-on-year to ₩42 trillion in 2024, as against ₩15.4 trillion in 2023. SK Hynix made a revenue of ₩15.5 trillion from China compared to ₩10.1 trillion in the previous year.

SK Hynix recovered from the loss of 2023. Its gross profit was of ₩31.8 trillion in 2024 as against a gross loss of ₩533.4 billion in 2023. Rising cost of sales amid falling revenue was responsible for the gross loss of the previous year. The gross profit margin of 48.1% exceeded the 10-year average by 9 percentage points. Operating profit of ₩23.5 trillion in 2024 was tantamount to an operating profit margin of 35.5%. In contrast, there was a negative operating profit margin of 23.6% in the earlier year. The company posted a Profit Before Tax (PBT) and Profit After Tax (PAT) of ₩23.9 trillion and ₩19.8 trillion respectively. Both PBT and PAT margins stood at 36.1% and 29.9% respectively. Total equity gained ₩20.4 trillion or 38.2% year-on-year to close at ₩73.9 trillion at 2024 year end. Total debt declined by 20% year-on-year to ₩27.2 trillion. As a result, debt to assets decreased from 33.9% in 2023 to 22.7% in 2024 while debt to equity ratio dropped 26.7 percentage points to 36.8%. The company generates enough profit and cash to pay of its interest on debts. In 2024, operating profit and operating profits covered interest payment 4.1 and 5.2 times respectively.

Business Risk

Competition is ramping up globally and the players must increase their spending on technology. This raises cost and depresses profit margins going forward. SK Hynix depends on customers outside South Korea for sales-mainly USA and China. The contribution of other Asian countries, apart from China, has trailed the average for three consecutive years. The company has found it increasingly difficult to penetrate Europe. In addition, it is subject to multiplicity of regulations which can make earnings volatile.

Recommendation: Overpriced