The Zhitong Finance App learned that SK Hynix (SKHY.US) handed over a record three-quarter report and at the same time proposed a shareholder return plan far exceeding market expectations. In the October 28 report, J.P. Morgan Chase and Citi both maintained bullish ratings — J.P. Morgan maintained an increase in holdings and a target price of 2.75 million won, Citi reiterated the purchase and target price of 3 million won, and Wedbush raised the target price from 2.56 million won to 3 million won, maintaining a “outperforming the market” rating.
On Wednesday, SK Hynix's shares listed in South Korea rose more than 10% to 1.487,000 won per share, while its US-listed American Depositary Receipts (ADR) rose 7% at the beginning of the session to $145.36 per share.
Volume and price double hit, operating profit exceeded expectations
SK Hynix's third-quarter revenue of 104.62 trillion won and operating profit of 83.33 trillion won were the highest in history in a single quarter, with year-on-month increases of 32% and 38%, respectively, and 328% and 632% year-on-year increases. Operating margin 79.7%.
The extent of exceeding expectations was the first highlight of this financial report: revenue was 11% higher than J.P. Morgan's forecast, 7% higher than market consensus outside Goldman Sachs; operating profit was 16% higher than J.P. Morgan's forecast and 9% higher than consensus. The consensus statement given by J.P. Morgan Chase in the report was revenue of 97,870 billion won 1 billion won (or 97.87 trillion won) and operating profit of 76.74 trillion won.
The drive comes from price and product structure. According to J.P. Morgan Chase, the average DRAM sales price in the third quarter rose “close to 30%” (high -20%, J.P. Morgan predicted +20%), and the average NAND price rose “20% mid-month” (mid -20%, original forecast +12%); DRAM bit shipments increased about 10% month-on-month, and NAND bit shipments declined slightly month-on-month (original forecast +3%). Citi added a detail: server DDR5 shipments increased by more than 40% month-on-month, and the drop in NAND bits was the result of a switch to high-value 321-layer TLC and eSSD products. J.P. Morgan believes that the higher average DRAM price than expected indicates that HBM4 climbs the slope smoothly.
The company's guidance for the fourth quarter was also strong: DRAM bit shipments increased “20% mid-range” month-on-month (J.P. Morgan originally predicted only +4%), and NAND bits increased “mid-single digit” month-on-month (original forecast +3%), from 1cnm process expansion, M15X production capacity climbing, and 321-layer eSD sales increase.
Wedbush also said that the company's third-quarter results exceeded expectations because the average sales price increase for DRAM and NAND chips exceeded expectations.
Tiny cracks in the income statement: Why pre-tax and net profit are lower than expected
Revenue and operating profit greatly exceeded expectations, but fell short after tax. J.P. Morgan listed two drags: exchange losses of 11.6 trillion won and Kioxia-related investment valuation losses of about 22.9 trillion won. The result was profit before tax of 50.71 trillion won and net profit of 39.53 trillion won, down 59% and 58%, respectively. They were 29% and 28% lower than the J.P. Morgan forecast, and 33% and 35% lower than the consensus.
The second negative listed by J.P. Morgan Chase is “showing signs of patchy weakness in PC and smartphone demand,” including changes in overall machine shipments and product portfolio changes. The third is “management anticipates a significant increase in capital expenditure in 2027 compared to 2026” — the company did not give specific figures. Capital expenditure for the third quarter was 12.7 trillion won, 31 trillion won from the beginning of the year, and J.P. Morgan has maintained a forecast of 47 trillion won for the whole year; the capital expenditure in the Citigroup model is 49.1 trillion won in 2026, 71 trillion won in 2027, and 111.4 trillion won in 2028, which is a forecast rather than corporate guidance.
The balance sheet continues to improve: the net debt/equity ratio improved from -26% in the second quarter to -32%, and Citi predicts -45.1% at the end of 2026, which is a further increase in net cash position.
Shareholder returns of 100 trillion won
According to J.P. Morgan Chase's statement, the company announced a shareholder return plan of 100 trillion won in 2026, consisting of 60 trillion repurchases and 40 trillion dollars in dividends. According to its 2026 free cash flow forecast, a dividend ratio of 65% or more is implied, which is clearly higher than the market consensus of “about 40 trillion won.”
Citi's split is about $30 trillion in cash dividends plus approximately $60 trillion in buybacks and cancellations (including $40 trillion repurchases already announced in August this year), and 100 trillion won equals 75.4 billion US dollars at the exchange rate.
What is certain is that the third quarter dividend of 20,000 won per share, of which 10,000 won comes from core operations and 10,000 won from the sale of Kioxia shares. The company plans to distribute most of the proceeds related to the sale of Kioxia in the form of a special dividend at the end of the year; this new 20 trillion won repurchase was approved, of which 10 trillion was used for shareholder returns and 10 trillion won was used for PSU (performance stock units). Citi made it clear that the latter was not included in shareholder returns.
Citi also gave an incremental judgment: management plans to continue to carry out repurchases on a quarterly basis on the grounds that the current stock price is undervalued compared to its profitability and ability to generate cash. Citi expects shareholder returns of approximately 35 trillion won in the fourth quarter (repurchases of about 15 trillion dollars + dividends of about 20 trillion yuan), and raised its operating profit forecast for the fourth quarter from 89.8 trillion won to 107 trillion won, and the operating profit forecast for 2026 and 2027 increased 7% and 12%, respectively.
Top HBM4 production capacity in 2027, long-term contract
On the technical 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 local production capacity. On the HBM side, the M15X will climb to full production by the end of 2026, and HBM4 will surpass HBM3E in terms of HBM position and revenue share in the fourth quarter; HBM negotiations have been finalized in 2027, and J.P. Morgan said that its profit gap with traditional 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 approximately 50% of the total production capacity in 2027 and 2028, and is in discussions with several customers to further extend the contract period, which is usually five years. According to this, Citi claims that DRAM/HBM is “substantially sold out” by the end of 2029 (including the number of customers), and observed that customer demand exceeded available supply by more than double; the company-level statement was that “storage demand will continue to exceed supply until 2030.” The two standards are different. The former is an investment bank estimate, and the latter is a company statement and are not interchangeable.
Wedbush said that by 2030, memory supply will likely remain tight, and demand for high-bandwidth memory will more than double SK Hynix's current shipments. The company also said long-term agreements with 14 customers cover more than half of its 2027 and 2028 production capacity and help make demand more predictable.
The demand guidelines given by the company for 2027 are “20% mid-range” DRAM growth and “high ten-digit percentage” for NAND growth. In the Citigroup model, the two digit growth rates in 2027 were “20% mid-range” and “high ten-digit” respectively, which is in line with the company's caliber. The company also said that quarterly earnings have yet to peak, and the upward trend will not be reversed until at least 2027.
Valuation and pricing
J.P. Morgan Chase increased its holdings, with a target price of 2.75 million won. The valuation method is 7 times the 2026-2027 average profit per share, on the grounds that the upward storage cycle is “stronger and longer.” It is important to note that J.P. Morgan Chase's target price period is June 2027, and it just lowered its target price from 3 million won to 2.75 million won on August 5, 2026, and there has been no increase this time.
Citi reiterated the purchase, and the target price of 3 million won remained unchanged, corresponding to the October 27 price of 1,341,000 won, with an implied return of 123.7% of the stock price and 124.9% of the total return including dividends. The valuation uses segment summation (SOTP), based on 2026 EBITDA: The HBM business referred to TSMC for 7.9 times EV/EBITDA. The reason is that the storage market is shifting from the traditional commodity market to a highly customized foundry model; the commodity storage business gave 6.3 times, taken from the average long-term EV/EBITDA value of 12 months at the beginning of the historical cycle.
And Wedbush's new price target means more than 100% room to rise, based on its 2027 profit forecast and profit estimates of about 5 times, plus net cash.
Citi's profit forecast shows 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 price-earnings ratio of 3.8 times, ROE of 106%, and return on free cash flow of 17.9%; in 2027, the price-earnings ratio fell to 2.8 times, and the return on free cash flow rose to 26.5%. According to Citibank data, the company's market value is approximately 979.59 trillion won, or approximately $738.5 billion.
On the risk side, J.P. Morgan listed three categories: DRAM prices and profit margins were lower than expected, terminal demand and inventory uncertainty; Citi listed three categories: declining demand for DRAM, weaker than expected demand for NAND, and weak global consumption.
J.P. Morgan Chase previously determined that the market sentiment towards SK Hynix was skewed before the earnings report (exchange headwinds and earnings per share fell short of expectations in the previous quarter), and this update that exceeded expectations plus shareholder returns “should bring sentiment back to a positive range.”