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SK Hynix
- Bond: HYUELE 5.5 29
- Indicative Yield-to-Maturity (YTM): 4.879%
- Credit Rating : Baa2 / BBB+ / BBB
Detailed Information
Fundamental View
AS OF 05 Dec 2024- We maintain our O/P recommendation on SK Hynix (Baa2/BBB/BBB) post its strong set of 3Q24 results, with robust topline growth and continued improvement in gross/EBITDA margins, as well as higher FOCF and better debt metrics. We expect SK Hynix’s leverage to continue trending lower over the next 12 months on resilient topline growth, robust EBITDA margin, strong FOCF, and lower debt; in addition, we expect the company to maintain its technology and production leadership in HBM products, and see reduced US chip sanction risk. We see room for an additional 10-20 bp of spread tightening against Micron and US BBB tech. In particular, we like its 27,28,29 for the higher spread pick up against US BBB Tech and Micron, and its 2033 bond for extending duration.
Business Description
AS OF 05 Dec 2024- SK Hynix is one of the world’s largest memory semiconductor companies. As an Integrated Device Manufacturer (IDM), it engages in the design, manufacturing and sale of advanced memory semiconductors. It derives two-thirds of its 9M24 revenues from the sale of DRAM (dynamic random-access memory), 31% from NAND Flash, and the remaining 3% from CMOS Image Sensors and foundry services. The company's products are essential to a wide range of electronic devices, including PCs, servers, graphic cards, and mobile devices.
- SK Hynix holds the second largest global market share (2Q24: 34.5%) in DRAM and NAND Flash (1Q24: 22.2%).
- SK Hynix is a member of SK Group, South Korea's second largest conglomerate by asset, and is 20.1%-owned by SK Square.
- The company has manufacturing facilities located in (1) South Korea — Icheon (DRAM, NAND), and Cheongju (NAND); and (2) China — Wuxi (DRAM), Dalian (NAND); and packaging & testing facilities in Chongqing, China.
- SK Hynix had a market capitalization of KRW 126.9 tn as of 5 December 2024.
Risk & Catalysts
AS OF 05 Dec 2024- The memory sector is subjected to significant boom/bust cycles, leading to volatility in its revenue and EBITDA margin. During an upcycle, memory vendors typically expand capacity to meet strong end-demand from PC, smartphones, and servers; however, the long-lead time for new plants could result in an oversupply when end-demand is tapering off.
- Capex intensity (as % of revenues) and R&D costs are elevated even in downcycles for SK Hynix, as it needs to maintain technological leadership and fast evolving product requirements from customers.
- SK Hynix has large production and revenue exposure to China; rising US-China tension and restrictive US chip exports to China could destabilize the long-term prospect of its China production and weigh on its $ bonds. Though, in Oct-23 SK Hynix was designated as a “Validated End User” by the US government, which gave it an indefinite waiver for importing US chip gears to their Chinese plants.
Key Metric
AS OF 05 Dec 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 19.9% | 23.5% | 28.1% | 37.8% | 27.3% |
| Net Debt to Book Cap | 12.8% | 13.3% | 21.2% | 27.7% | 15.5% |
| Debt/Total Equity | 24.8% | 30.8% | 39.2% | 60.7% | 37.6% |
| Debt/Total Assets | 18.1% | 19.9% | 23.9% | 32.4% | 22.7% |
| Gross Leverage | 0.9x | 0.8x | 1.2x | 5.8x | 0.9x |
| Net Leverage | 0.6x | 0.5x | 0.9x | 4.3x | 0.5x |
| Interest Coverage | 57.3x | 87.3x | 38.7x | 3.8x | 19.0x |
| EBITDA Margin | 45.5% | 52.8% | 46.2% | 17.1% | 48.5% |
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CreditSight View Comment
AS OF 23 Jan 2025We maintain our O/P recommendation on SK Hynix post its strong set of 4Q24 results, with robust topline growth and continued improvement in gross/EBITDA margins, as well as higher FOCF and better debt metrics. We expect SK Hynix’s leverage to continue trending lower over the next 12 months on resilient topline growth, robust EBITDA margin, strong FOCF, and lower debt; in addition, we expect the company to maintain its technology and production leadership in HBM products, and see reduced US chip sanction risk. We see room for an additional 10 bp of spread tightening against Micron and US BBB tech. We like its 28/29 for short-dated high coupon carry and a higher spread pick up against Micron, and its 2033 for duration extension given our constructive medium/long term outlook
Recommendation Reviewed: January 23, 2025
Recommendation Changed: January 08, 2024
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Who We Recommend
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Bond:
HYUELE 5.5 29
Credit Rating:
Baa2 / BBB+ / BBB
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Bond:
HYUELE 5.5 29
Credit Rating:
Baa2 / BBB+ / BBB
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Bond:
HYUELE 5.5 29
Credit Rating:
Baa2 / BBB+ / BBB
