SK Hynix's Q3 earnings beat expectations, JPMorgan gives a target price with doubling upside potential.

October 28 — SK Hynix today announced its third-quarter financial results. Quarterly revenue reached KRW 104.6155 trillion, surpassing KRW 100 trillion for the first time in history, up approximately 328% year-over-year and 32% quarter-over-quarter; operating profit was KRW 83.3338 trillion, up approximately 632% year-over-year and 38% quarter-over-quarter, with a margin approaching 80%, setting a historical record. Net profit was KRW 39.7756 trillion, relatively weaker than some expectations due to foreign exchange losses and Kioxia investment-related factors.

Performance was primarily driven by AI infrastructure demand, accelerated HBM (especially HBM4) shipments, and rising prices and strong shipments of server DRAM/DDR5 and eSSD. The company announced approximately KRW 100 trillion in total shareholder returns for fiscal year 2026 (at least KRW 30 trillion in cash dividends, and at least KRW 60 trillion in buybacks and cancellations), and will return most of the Kioxia investment gains to shareholders.

The company reiterated that memory market supply shortage is expected to persist until 2030, having signed long-term supply agreements (LTAs) with 14 major customers covering more than 50% of capacity for 2027-2028; HBM4 is expected to surpass HBM3E in shipments and revenue starting from the fourth quarter to become the main product. DRAM and HBM capacity for the next three years (through 2029) is almost sold out. Actual results significantly exceeded market consensus (operating profit of approximately KRW 76.7-77 trillion), driving related stock prices higher.

JPMorgan stated that sales and operating profit exceeded consensus by approximately 9% and 16%, respectively, and also exceeded its own expectations by approximately 11% and 16%. The beat was mainly driven by stronger-than-expected ASP increases for server DRAM and eSSD (DRAM ASP up more than 20% quarter-over-quarter, NAND up more than 20%), with shipments better than guidance, indicating smooth HBM4 capacity ramp-up. Although pre-tax and net profit were dragged by foreign exchange losses (approximately KRW 11.6 trillion) and possible Kioxia-related valuation losses, the strong operating profit performance validates the memory upcycle logic.

The bank emphasized that the KRW 100 trillion shareholder return plan (representing over 65% of expected 2026 free cash flow) far exceeds market consensus, reflecting management's confidence in future cash flows. Long-term agreements locking in more than 50% of capacity for 2027-2028, HBM4 becoming the main product in the fourth quarter, and the judgment that demand will exceed supply until 2030 provide support for medium- to long-term revenue and earnings visibility. Capital expenditure is proceeding as planned, with a significant increase expected in 2027.

JPMorgan maintains its Overweight rating with a target price of KRW 2,750,000 (approximately 7x 2026-2027 average expected EPS), implying approximately 105% upside from the current stock price. The core logic is that the memory upcycle is still in its early stages, SK Hynix as a pure-play memory business has higher elasticity, and AI solution execution capabilities significantly enhance earnings generation capacity.

MS Hwang, Research Director at Counterpoint Research, stated that the main driver behind this quarter's significant profit surge was the rapid price spike in conventional DRAM and NAND, with HBM price increases also contributing but not being the sole driving factor. Long-term agreements signed with major customers (including NVIDIA) signal another round of price increases for conventional DRAM, NAND, and HBM. The firm believes that quarterly profits have not yet peaked, and the upward trend may continue at least until 2027. The company's assessment that the memory supply shortage will persist until 2030 aligns with industry observations regarding the increasing difficulty of advanced processes and the long cycle for building new capacity.