UBS sees upside in SK Hynix stock on high memory profitability

Investing.com -- UBS initiated coverage of SK Hynix's ADR (NASDAQ: SKHY) with a Buy rating and a $204 price target in a note to clients on Thursday, as the firm argues the market is underpricing structurally higher memory profitability.

Analyst Nicolas Gaudois noted the ADR is down 33% from its July 14 peak and 13% below its offering price of $149, and now discounts a long-term return on equity broadly in line with the "post DRAM consolidation (2012), pre AI (2022) average of 17.7%." That compares with UBS's own 2027-2031 average estimate of 40.2%.

UBS said the memory industry has "drastically changed," with agentic AI set to boost memory bit demand into 2027.

The firm expects DRAM bit demand growth to accelerate to 36% year over year in 2027, from 22% in 2026, and NAND to 23% from 20%. At current levels, UBS said, shares do not fully reflect higher profitability, stronger free cash flow generation and enhanced shareholder returns.

On second-quarter results, UBS highlighted that revised long-term agreements are being signed "at a faster pace than we expected," with 10 in place and more under negotiation, which it said may cap near-term pricing upside but prove accretive to margins longer term.

DRAM average selling prices rose 30% quarter over quarter, held back by a higher mobile mix and HBM4 shipments starting only late in the period.

UBS added that management raised capex guidance to "high Won40tn." The firm values the local shares at 3.65 times forward price-to-book.

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