SK hynix (SKHY.US) has delivered a record-breaking third-quarter earnings report while simultaneously unveiling a shareholder return plan that far exceeded market expectations.
JPMorgan and Citi both maintained their bullish ratings in reports dated October 28 — JPMorgan kept its Overweight rating with a target price of 2.75 million Korean won, Citi reiterated its Buy rating with a target price of 3 million Korean won, and Wedbush raised its target price from 2.56 million won to 3 million won while maintaining an Outperform rating.
On Wednesday, SK hynix shares listed in Korea rose more than 10% to 1,487,000 won per share, while its US-listed American Depositary Receipts (ADR) gained 7% in early trading to $145.36 per share.
Volume and Price Both Surge, Operating Profit Beats Expectations
SK hynix reported third-quarter revenue of 104.62 trillion Korean won and operating profit of 83.33 trillion won, both marking record quarterly highs, with quarter-on-quarter growth of 32% and 38% respectively, and year-on-year increases of 328% and 632%. The operating margin stood at 79.7%.
The magnitude of the beat is the first highlight of this earnings report: revenue came in 11% above JPMorgan's forecast and 7% above consensus excluding Goldman Sachs; operating profit exceeded JPMorgan's estimate by 16% and consensus by 9%.
JPMorgan cited a consensus figure of 97.87 trillion won in revenue and 76.74 trillion won 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-20s%, versus JPMorgan's original forecast of +20%), while NAND average prices rose "mid-20s%" quarter-on-quarter (versus the original forecast of +12%); DRAM bit shipments increased approximately 10% quarter-on-quarter, while NAND bit shipments declined slightly (versus the original forecast of +3%).
Citi added a detail: server DDR5 shipments grew more than 40% quarter-on-quarter, while the decline in NAND bits was a result of shifting toward higher-value 321-layer TLC and eSSD products.
JPMorgan believes the stronger-than-expected DRAM average prices indicate a smooth HBM4 ramp-up. The company's guidance for the fourth quarter is also on the strong side: DRAM bit shipments to grow "mid-20s%" quarter-on-quarter (versus JPMorgan's original forecast of just +4%), and NAND bits to grow "mid-single-digits%" quarter-on-quarter (versus the original forecast of +3%), driven by 1cnm process expansion, M15X capacity ramp-up, and increased 321-layer eSSD sales.
Wedbush also noted that the company's third-quarter results exceeded expectations, attributing this to higher-than-anticipated average selling price increases for DRAM and NAND chips.
Small Cracks in the Income Statement: Why Pre-tax and Net Profit Fell Below Expectations
While revenue and operating profit significantly beat expectations, the bottom line fell short. JPMorgan identified two drags: a foreign exchange loss of 11.6 trillion won and approximately 22.9 trillion won in valuation losses related to the Kioxia investment.
As a result, pre-tax profit came in at 50.71 trillion won and net profit at 39.53 trillion won, down 59% and 58% quarter-on-quarter respectively, missing JPMorgan's forecasts by 29% and 28% and falling below consensus by 33% and 35%.
The second negative factor JPMorgan highlighted was "patchy signs of weakness in PC and smartphone demand," including shipment adjustments and product mix changes, which the bank attributes to memory price increases; the third was that "management expects capital expenditure in 2027 to increase significantly compared to 2026" — the company did not provide specific figures.
Third-quarter capital expenditure was 12.7 trillion won, bringing the year-to-date total to 31 trillion won, with JPMorgan maintaining its full-year forecast of 47 trillion won; Citi's model projects capital expenditure of 49.1 trillion won for 2026, 71 trillion won for 2027, and 111.4 trillion won for 2028 — these are forecast estimates rather than company guidance.
The balance sheet continued to improve: the net debt-to-equity ratio improved from -26% in the second quarter to -32%, with Citi forecasting -45.1% by the end of 2026, meaning the net cash position will further strengthen.
100 Trillion Won Shareholder Return Plan
JPMorgan's description: the company announced a 2026 shareholder return plan totaling 100 trillion won, comprising 60 trillion won in buybacks and 40 trillion won in dividends, implying a payout ratio of over 65% based on its 2026 free cash flow forecast — significantly higher than the market consensus of "approximately 40 trillion won."
Citi's breakdown is approximately 30 trillion won in cash dividends plus approximately 60 trillion won in buybacks and cancellations (including the 40 trillion won buyback already announced in August this year), with the 100 trillion won equivalent to approximately $75.4 billion at current exchange rates.
What is certain: the third-quarter dividend per share is 20,000 won, of which 10,000 won comes from core operations and 10,000 won from gains on the sale of Kioxia shares; the company plans to distribute most of the Kioxia sale-related gains as a special dividend at year-end; the newly approved 20 trillion won buyback includes 10 trillion won for shareholder returns and 10 trillion won for PSUs (Performance Stock Units), with Citi explicitly stating that the latter does not count toward shareholder returns.
Citi also offered an incremental judgment: management plans to continue executing buybacks on a quarterly basis, citing the view that the current share price is undervalued relative to its earnings and cash generation capability.
Citi estimates fourth-quarter shareholder returns at approximately 35 trillion won (approximately 15 trillion won in buybacks plus approximately 20 trillion won in dividends), and raised its fourth-quarter operating profit forecast from 89.8 trillion won to 107 trillion won, while upgrading its 2026 and 2027 operating profit forecasts by 7% and 12% respectively.
2027: HBM4 Takes the Lead, Long-Term Contracts Lock in Capacity
On the technology front, the company plans to increase the proportion of 1cnm server products and expand sales of 1cnm-based DDR5 and LPDDR5 SOCAMM, with 321-layer NAND expected to account for more than 50% of domestic capacity in the fourth quarter.
In HBM, M15X will ramp to full capacity by the end of 2026, and HBM4 will surpass HBM3E in HBM bit and revenue share in the fourth quarter; 2027 HBM negotiations have already been finalized, and JPMorgan says 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 volumes equivalent to more than 50% of total capacity for 2027 and 2028, and is discussing with several customers the possibility of extending the typically five-year contract terms further.
Based on this, Citi says DRAM/HBM is "effectively sold out" through the end of 2029 (including volumes under negotiation with customers), and has 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 through 2030." The two figures come from different sources — the former is an investment bank estimate while the latter is a company statement — and they are not interchangeable.
Wedbush stated that memory supply may remain tight through 2030, with high-bandwidth memory demand exceeding SK hynix's current shipments by more than two times. The company also noted that long-term agreements with 14 customers covering more than half of its 2027 and 2028 capacity help improve demand predictability.
The company's 2027 demand guidance is for DRAM to grow "mid-20s%" year-on-year and NAND to grow "high-teens percentage," with Citi's model showing 2027 bit growth rates of "mid-20s%" and "high-teens" respectively — consistent with the company's guidance. The company also stated that quarterly earnings have not yet peaked and that the upward momentum will not reverse at least until 2027.
Valuation and Pricing
JPMorgan assigned an Overweight rating with a target price of 2.75 million won, using a valuation method of 7 times the 2026-2027 average earnings per share, citing a memory upcycle that is "stronger and longer." It should be noted that JPMorgan's target price horizon is June 2027, and it had just lowered its target price from 3 million won to 2.75 million won on August 5, 2026 — this time it did not raise it.
Citi reiterated its Buy rating with a target price of 3 million won unchanged, corresponding to the October 27 price of 1,341,000 won, implying a share price return of 123.7% and a total return including dividends of 124.9%. Its valuation uses a sum-of-the-parts (SOTP) approach based on 2026 EBITDA: the HBM business is valued at 7.9 times EV/EBITDA, referencing TSMC, on the rationale that the memory market is shifting from a traditional commodity market to a highly customized foundry-like model; the commodity memory business is assigned 6.3 times, taken from the historical average 12-month forward EV/EBITDA at the early stage of upcycles.
Wedbush's new target price implies upside of more than 100%, based on its 2027 earnings forecast and approximately 5 times earnings valuation, plus net cash.
Citi's earnings forecasts show 2026 revenue of 367.95 trillion won, operating profit of 288.5 trillion won, net profit of 256.1 trillion won, and earnings per share of 351,844 won, corresponding to a P/E of 3.8 times, ROE of 106%, and free cash flow yield of 17.9%; for 2027, the P/E drops to 2.8 times and free cash flow yield rises to 26.5%.
According to Citi data, the company's market capitalization is approximately 979.59 trillion won, equivalent to approximately $738.5 billion.
On risks, JPMorgan lists DRAM prices and margins below expectations, and uncertainties in end demand and inventory; Citi lists three: downside in DRAM demand, NAND demand weaker than expected, and weak global consumption.
JPMorgan previously judged that market sentiment toward SK hynix was bearish ahead of the earnings report (due to foreign exchange headwinds and the previous quarter's earnings per share miss), and that this earnings beat combined with the shareholder return update "should bring sentiment back into positive territory."
Comments