SK Hynix (SKHY.US) delivers standout earnings, with Wall Street unanimously bullish.

SK Hynix (SKHY.US) delivered a record-breaking third-quarter report and simultaneously unveiled a shareholder return plan far exceeding market expectations. In their October 28 reports, JPMorgan and Citi both maintained bullish ratingsJPMorgan kept its Overweight rating with a target price of KRW 2.75 million, Citi reiterated Buy with a target price of KRW 3 million, and Wedbush raised its target price from KRW 2.56 million to KRW 3 million while maintaining an "Outperform" rating. On Wednesday, SK Hynix's Korea-listed shares rose more than 10% to KRW 1.487 million per share, while its US-listed American Depositary Receipts (ADR) rose 7% in early trading to US$145.36 per share. Volume and price double beat, operating profit exceeds expectations SK Hynix's third-quarter revenue was KRW 104.62 trillion, and operating profit was KRW 83.33 trillion, both record quarterly highs, up 32% and 38% quarter-on-quarter and up 328% and 632% year-on-year, respectively. Operating margin was 79.7%. The magnitude of the beat is the first highlight of this earnings report: revenue was 11% above JPMorgan's forecast and 7% above market consensus excluding Goldman Sachs Group, Inc.; operating profit was 16% above JPMorgan's forecast and 9% above consensus. JPMorgan's report cited consensus figures of KRW 97,870 billion (i.e., KRW 97.87 trillion) in revenue and KRW 76.74 trillion in operating profit. The drivers came from pricing and product mix. According to JPMorgan, third-quarter DRAM average selling prices rose "close to 30%" quarter-on-quarter (high-20%, versus JPMorgan's original forecast of +20%), and NAND average prices rose "mid-20%" quarter-on-quarter (mid-20%, versus original forecast of +12%); DRAM bit shipments increased about 10% quarter-on-quarter, while NAND bit shipments declined slightly quarter-on-quarter (versus original forecast of +3%). Citi added a detail: server DDR5 shipments grew more than 40% quarter-on-quarter, and the decline in NAND bits was the result of a shift toward higher-value 321-layer TLC and eSSD products. JPMorgan believes the stronger-than-expected DRAM average price indicates a smooth HBM4 ramp. The company's fourth-quarter guidance is also strong: DRAM bit shipments to grow "mid-20%" quarter-on-quarter (JPMorgan's original forecast was only +4%), NAND bits to grow "mid-single-digit" quarter-on-quarter (original forecast +3%), driven by 1cnm process expansion, M15X capacity ramp, and increased 321-layer eSSD sales. Wedbush also said the company's third-quarter results exceeded expectations due to larger-than-expected increases in average selling prices for DRAM and NAND chips. Tiny cracks in the income statement: why pre-tax and net profit fell short of expectations Revenue and operating profit substantially beat expectations, but after-tax results fell short. JPMorgan listed two drags: a foreign exchange loss of KRW 11.6 trillion and an approximately KRW 22.9 trillion valuation loss on Kioxia-related investments. As a result, pre-tax profit was KRW 50.71 trillion and net profit was KRW 39.53 trillion, down 59% and 58% quarter-on-quarter, 29% and 28% below JPMorgan's forecasts, and 33% and 35% below consensus. The second negative JPMorgan listed was "patchy signs of weakness in PC and smartphone demand," including device shipment adjustments and product mix changes, which it judged to be related to memory price increases; the third was that "management expects 2027 capital expenditure to increase significantly versus 2026"the company did not provide a specific figure. Third-quarter capital expenditure was KRW 12.7 trillion, and year-to-date was KRW 31 trillion; JPMorgan maintained its full-year forecast of KRW 47 trillion. Citi's model has capital expenditure of KRW 49.1 trillion in 2026, KRW 71 trillion in 2027, and KRW 111.4 trillion in 2028, which are forecast figures rather than company guidance. The balance sheet continued to improve: net debt/equity improved from -26% in the second quarter to -32%, and Citi forecasts -45.1% by the end of 2026, meaning the net cash position will be further strengthened. KRW 100 trillion shareholder return JPMorgan's description: the company announced a 2026 shareholder return plan of KRW 100 trillion, consisting of KRW 60 trillion in buybacks and KRW 40 trillion in dividends, implying a payout ratio of more than 65% based on its 2026 free cash flow forecast, significantly higher than the market consensus of "approximately KRW 40 trillion." Citi's breakdown is approximately KRW 30 trillion in cash dividends plus approximately KRW 60 trillion in buybacks and cancellation (including the KRW 40 trillion buyback already announced in August this year); KRW 100 trillion is equivalent to approximately US$75.4 billion at exchange rates. What is certain: the third-quarter dividend is KRW 20,000 per share, of which KRW 10,000 comes from core operations and KRW 10,000 from gains on the sale of Kioxia shares; the company plans to distribute most of the gains related to the Kioxia sale as a special dividend at year-end; this time it newly approved a KRW 20 trillion buyback, of which KRW 10 trillion is for shareholder return and KRW 10 trillion is for PSUs (performance stock units), and Citi explicitly stated that the latter is not counted in shareholder return. Citi also provided an incremental judgment: management plans to continue executing buybacks on a quarterly basis, on the grounds that it believes the current share price is undervalued relative to its earnings and cash generation capacity. Citi expects fourth-quarter shareholder return of approximately KRW 35 trillion (approximately KRW 15 trillion in buybacks + approximately KRW 20 trillion in dividends), and raised its fourth-quarter operating profit forecast from KRW 89.8 trillion to KRW 107 trillion, while raising 2026 and 2027 operating profit forecasts by 7% and 12%, respectively. HBM4 takes the lead in 2027, long-term contracts lock in capacity On the technology side, the company plans to increase the share of 1cnm server products and expand sales of 1cnm-based DDR5 and LPDDR5 SOCAMM; in the fourth quarter, 321-layer NAND will account for more than 50% of domestic capacity. In HBM, M15X will ramp to full capacity by the end of 2026, and in the fourth quarter HBM4 will exceed HBM3E in HBM bit and revenue share; 2027 HBM negotiations have already been finalized, and JPMorgan said the profitability gap with conventional DRAM will "narrow significantly." Demand visibility is supported by long-term contracts. The company has signed long-term agreements with 14 key customers, locking in long-term contracted volumes equivalent to more than 50% of total capacity in 2027 and 2028, and is discussing with several customers further extending the contract term, which is typically five years. On this basis, Citi said DRAM/HBM is "effectively sold out" through the end of 2029 (including volumes under negotiation with customers), and observed that customer demand exceeds available supply by more than two times; the company's own statement is that "the state of memory demand exceeding supply will continue until 2030." The two are different measuresthe former is an investment bank estimate, the latter is a company statementand cannot be interchanged. Wedbush said memory supply may remain tight through 2030, with high-bandwidth memory demand exceeding SK Hynix's existing shipments by more than two times. The company also said long-term agreements with 14 customers covering more than half of its 2027 and 2028 capacity also help improve demand predictability. The company's 2027 demand guidance is DRAM year-on-year growth of "mid-20%" and NAND growth of "high-teens percentage," and Citi's model has 2027 bit growth of "mid-20%" and "high-teens" for the two, respectively, matching the company's figures. The company also said quarterly profit has not yet peaked and the upward momentum will not reverse at least until 2027. Valuation and pricing JPMorgan rates the stock Overweight with a target price of KRW 2.75 million, using a valuation method of 7x average earnings per share for 2026-2027, on the grounds that the memory upcycle is "stronger and longer." It should be noted that JPMorgan's target price horizon is June 2027, and it had just cut its target price from KRW 3 million to KRW 2.75 million on August 5, 2026; this time it did not raise it. Citi reiterated Buy and kept its target price unchanged at KRW 3 million, corresponding to the October 27 price of KRW 1,341,000, implying a share price return of 123.7% and a total return including dividends of 124.9%. Its valuation uses sum-of-the-parts (SOTP) based on 2026 EBITDA: the HBM business is assigned 7.9x EV/EBITDA by reference to Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR, on the grounds that the memory market is shifting from a traditional commodity market to a highly customized foundry-like model; the commodity memory business is assigned 6.3x, taken from the historical average 12-month forward EV/EBITDA at the early stage of past upcycles. Wedbush's new target price implies more than 100% upside, based on its 2027 earnings forecast and approximately 5x earnings valuation, plus net cash. Citi's earnings forecasts show 2026 revenue of KRW 367.95 trillion, operating profit of KRW 288.5 trillion, net profit of KRW 256.1 trillion, and earnings per share of KRW 351,844, corresponding to a P/E of 3.8x, ROE of 106%, and free cash flow yield of 17.9%; in 2027, P/E falls to 2.8x and free cash flow yield rises to 26.5%. According to Citi data, the company's market capitalization is approximately KRW 979.59 trillion, equivalent to approximately US$738.5 billion. On risks, JPMorgan listed DRAM prices and margins below expectations and uncertainty in end demand and inventory; Citi listed three: downside in DRAM demand, weaker-than-expected NAND demand, and weak global consumption. JPMorgan previously judged that market sentiment toward SK Hynix was bearish before the earnings report (FX headwinds and last quarter's earnings per share miss), and this beat plus the shareholder return update "should be able to pull sentiment back into positive territory."