SK hynix expected to continue bull run
By Kim Yoo-chul
Shares of SK hynix are expected to continue making gains thanks to a very strong earnings outlook, analysts said.
The chipmaker is emerging as a true winner in the "winner-takes-all" chip market, according to analysts.
Memory chipmakers are benefiting from improved market conditions given that the recent market restructuring has pushed many operators out of business.
Analysts are upbeat about the outlook for SK hynix, citing its strong finances and improving business fundamentals. The firm is not expected to contend with major risks within the next two or three years.
Its share price closed last week at 42,350 won on the nation's main bourse, extending its rally for three consecutive weeks.
This figure is pushing it close to its all-time high of 49,600 won recorded on June 19, 1997.
SK hynix, the producer of a wide range of memory solutions, was created out of a merger between Hyundai Semiconductor and LG Semiconductor and is currently part of the SK Group.
"We maintain 51,000 won as our target for SK hynix. All market conditions are in favor of SK hynix," said IM Securities senior analyst Lee Min-hee.
Foreign ownership in the firm has also increased significantly over the past few months and this has helped buoy the SK hynix stock, according to Bernstein Research, with further gains forecasted.
Senior analyst, Mark C. Newman of Bernstein Research however cautioned that "looking back at share price performance, SK hynix hasn't performed as well as Micron and Inotera."
It reported 14.16 trillion won in sales last year, and 3.3 trillion won in operating profit ― which were both record gains.
SK hynix's heavy reliance on dynamic random memory access (DRAM) chips has been cited as a potential weakness in its future growth. Flash-type chips currently account for a very small part of the firm’s overall profits. In 2013, DRAM accounted for 72 percent of its total sales.
It is cutting its dependence on DRAM chips by shifting its focus to flash chip-embedded solutions and non-memory chips.
It also plans to unveil solid-state drive (SSD) solutions for corporate clients in the third quarter of this year. SSD is viewed as the next-generation storage device that will eventually replace hard disk drives.
SSD is based on flash memory chips. Samsung dominates this sector with a global share of 26 percent, followed by Intel with 18 percent, SanDisk 15 percent and Toshiba 10 percent.
"SK hynix wants to become a game changer in the SSD market for corporate clients. We are confident that we can boost our profits as SK hynix has a strong client base and we've been consistent in sharpening our competitiveness in SSD solutions," said an official at SK hynix's research lab.
The company is betting on non-memory chips, which are more profitable and less-volatile. Its spokesman Son Kyung-bae, however said they won't aggressively invest in the non-memory chip sector in the foreseeable future.
Newman also said, "SK hynix is one of our top pure-play memory picks due to limited downside based on replacement analysis and strong upside under both our target price and our 'bull case' scenario."