Visible Earnings Growth Expected for HBM Leader

SK Hynix is set to outshine its peers with stronger earnings, primarily driven by the surging demand for AI servers. The company's leadership in high-bandwidth memory (HBM) chips, crucial for both AI training and reasoning, positions it favorably for mid- and long-term growth. With negotiations for next year's HBM chip supply likely to conclude by the first half of 2025, SK Hynix is on track to secure long-term contracts that promise reduced earnings volatility and a more stable growth trajectory.

4Q24 Review: A Focus on Stronger Profitability Over Peers

In the fourth quarter of 2024, SK Hynix reported an operating profit of KRW8.1 trillion, marking a 15% quarter-over-quarter increase, on sales of KRW19.8 trillion, which also saw a 12% increase. This performance not only surpassed market expectations but also highlighted the company's strategic focus on profitability. The remarkable 4.5 times YoY jump in HBM chip sales in 2024 underscores the company's margin gains, with DRAM operating margin reaching 51.5% in 4Q.

Looking Ahead: Valuation & Risk

Despite adjusting our forecasts for 1Q25 sales and operating profit downwards, reflecting delays in demand recovery and weak seasonality, we anticipate an upward trajectory from the second quarter onwards. Factors such as the shipment of a new GPU server rack system, PC replacement demand, and inventory restocking are expected to drive this growth. We maintain a BUY recommendation for SK Hynix, with a target price of KRW290,000, based on a 2025F BPS of KRW134,766 and a target PBR of 2.2x.